Vanessa Hale
Director, Research
With mortgage regulations getting tighter, some people are looking at other outlets from which to borrow money to buy homes – whether to live in or as investment properties.
Here are some of the more interesting ways to fund a property purchase…
Individual lenders
Often one of the problems is the mismatch between those who can afford housing and those that need housing. But a report by Legal & General (L&G) suggests individual investors could be the answer.
While we’ve traditionally relied on institutions like banks and building societies to lend us money, L&G thinks innovative investment structures that match individual lenders with homebuyers could help revive the housing market.
Its research shows that 1 in 4 people would consider investing in other people’s property purchases. The payoff for the lender would be - like with banks - a repayment of the loan with interest.
The bank of mum and dad
As house prices continue to rise, children without established credit histories or large incomes have been turning to both parents and grandparents to help them buy a property.
The benefit is that the money essentially stays in the family without the bank taking a slice – or at least the bank taking a smaller slice if the parents are simply providing the deposit.
L&G claims that around a quarter of mortgages this year will involve some form of payment from parents – the equivalent of lending around £5bn. By 2035, it predicts this figure will rise to more than half of all mortgages.
Another survey from KeyRetirement.com found that 1 in 5 homeowners are using the equity from their homes to help family members get on the housing ladder.
Pension pots
When the rules around pension access freedoms changed in April 2015, it opened the door for a new type of home buyer - one that hand been secretly saving for this day without knowing it.
Many used their new-found ‘wealth’ to enter the property market. Figures from the Commercial Trust show the proportion of newly-retired landlords entering the buy-to-let market doubled between April and December 2015.
The proportion of mortgage applications from individuals aged 55 to 59 in the third quarter of 2015 increased to 18.5%, up from 7% in the first quarter of the year.
And while this has dropped off since the initial rush to cash in, it shows that many people nearing retirement age are still looking at ways to get involved in property.
Crowdfunding
At the other end of the age scale are the young homebuyers who are considering increasingly modern ways to buy a home. One of which is crowdfunding.
Not often used for single buyers, it’s more of an investment vehicle for young Millennials who want to be part of the property boom but don’t have the capital.
Often, dozens of people will come together – some putting in as little as £10 – to buy a home that will often be rented out. Rental yields are promised, though whether they can be met is another matter.
Crowdfunding is different to peer-to-peer lending – in which people lend money to others for a deposit on a home and charge interest, much like a standard loan. Both come with their risks, as often the required investment expertise can be missing, while returns – like with all investments – aren’t guaranteed.