Loan scheme launched to aid first time buyers
House-builder Barratt Developments is to give parents of first-time buyers the chance to help their children onto the property ladder by offering secured loans.
The property developer is teaming up with Hitachi Capital, the UK financial services arm of the Japanese firm, to offer the loans.
Parents will be able to borrow up to £50,000 through the scheme, which can then be used by their children as a deposit.
The scheme means first-time buyer's will be take out an 80% loan-to-value mortgage with just a 5% deposit. The rest will be supplemented by the loan.
For more read our piece: Five-minute guide for first-time buyers
Prospective buyers can purchase a property from any of the three Barratt Developments brands – Barratt Homes, David Wilson Homes and Ward Homes.
"This product is ideal for parents who have sufficient income to service a loan but no available capital, or people who have capital which is tied-up and which they do not want to access in the short term," says Mark Clare, chief executive of Barratt Developments.
"We know there is enormous demand for homeownership among people under the age of 40 who are currently renting, and this product will make it easier for them to take that all important first step on the ladder."
The loans have a 12-year term and a rate of 5.4%. There are no early repayment charges and unlimited over payments are allowed. Borrowers must have an excellent credit record.
"I think the Barratt scheme is an excellent and innovative idea to allow parents without huge amounts of spare cash to help their children get on the ladder," says Jonathan Cornell, spokesperson for brokerage First Action Finance. "The unsecured loan rate is very competitive. It is great to see new ideas being developed and this will only encourage innovation in the industry."
Unsecured loans mean the loan is not secured on any asset you already own, such as a house, car or other assets and so is a riskier prospect for the lender. Therefore, they usually come with higher interest rates than their secured counterparts, are less flexible and levy high redemption penalties. Most “personal” loans are unsecured.