Why Family Support Is Not Always Straightforward – and How the New Scheme Could Help First-Time Buyers
For many first-time buyers, the challenge of getting onto the property ladder is not necessarily meeting monthly mortgage payments, but raising the substantial deposit needed to buy in the first place. The Government's newly announced Your First Home scheme is intended to address that barrier, particularly for buyers who cannot rely on financial assistance from their parents or wider family.
Announcing the scheme, Prime Minister Andy Burnham said the Government wanted to help more first-time buyers onto the housing ladder, “especially those who can’t call on the bank of mum and dad”.
Under the proposals announced so far, eligible first-time buyers purchasing a qualifying new-build property in England could do so with a deposit of just 2.5%. This would be supported by a government-backed equity loan of up to 20% of the property's value, with an initial interest-free period. The remaining purchase price would ordinarily be funded through a mortgage.
The Government also intends to introduce household income limits and local property price caps, with the aim of targeting the scheme towards buyers who would otherwise struggle to purchase their first home. Full eligibility criteria and further details about how the equity loans will operate are expected at the Autumn Budget.
The focus on the “Bank of Mum and Dad” reflects the increasingly important role family money can play in helping younger generations purchase property.
As Lisa Dawson , Partner and Head of Family at Ellisons, explains: “It remains common place for myself and the rest of the family team to be instructed on a relationship breakdown where relatives have provided, usually their children, with money to pay off debts, carry out renovations, put down deposits for property, pay off mortgages or buy properties outright for them.”
While financial support from parents and grandparents can make home ownership possible, Lisa's experience also highlights some of the legal considerations that can arise where substantial sums are provided informally. Lisa says: “With it becoming common place for parents and indeed grandparents to provide larger and larger sums of money, it is vital for honest and clear conversations to be had about the expectations of what would happen in the event of separation.”
Your First Home could therefore provide another route into home ownership for qualifying buyers who do not have access to that family support. However, the issue is more nuanced than simply whether parents are able to help financially. Where family support is available, the way that support is structured can also have important consequences later.
Lisa also highlights that family contributions towards deposits and property purchases are often made without formal terms being agreed: “No terms in regard to that money, were ever agreed. No consideration of whether interest would be charged, nothing in regard to when repayment would be expected.”
Those arrangements may work perfectly well while circumstances remain unchanged, but they can become more complicated if a relationship later breaks down or the parties disagree over whether the money was intended as a gift or a loan.
By reducing the size of the deposit required from eligible buyers, Your First Home could therefore do more than simply help people purchase sooner. For some buyers, it may also reduce the extent to which they need to rely on informal financial arrangements with parents or grandparents.
The scheme is also specifically tied to the new-build market. Buyers will need to purchase from a developer participating in Your First Home, while developers themselves will be expected to make a contribution towards the cost of the scheme. This creates two sides to the policy: reducing the upfront financial barrier facing eligible first-time buyers while seeking to stimulate demand for new homes and give developers greater confidence to build.
Whether you are a first-time buyer considering purchasing through the Your First Home scheme, or a developer looking at what the proposals could mean for future residential projects, our teams can help you navigate the legal considerations involved.
If you would like advice on buying a home or developing property under the Your First Home scheme, please contact our team at enquiries@ellisons.com
