Housebuyers Face Two-tier Mortgage Market

05/08/12/A. Velasco

Posted on 05/08/12

The housing market in the UK right now is feeling the same squeeze as the rest of the economy, with the prices of houses dropping in many places across the country, fewer people believing they have the means to buy properties, and banks being more careful with lending out money for mortgages.

Now in reality the housing market has become one of two tiers, divided between those who can afford a substantial deposit and those who cannot. In fact, the situation is now so unequal between those who have the money for a deposit of 30 or 40 percent of the value of the property and those who can only manage five or ten, that those unable to make a large deposit could find themselves paying more than double the mortgage interest compared to those able to make a large deposit.

Big Difference

The maximum allowed sum to borrow for a property is 95 percent of the value, with the rule put in place to avoid another housing bubble bursting. Someone taking out a mortgage for a house under those terms, paying only the required minimum of five percent in deposit, can well end up paying roughly £300 more per month on a £150,000 loan compared to someone borrowing the same amount but providing a larger deposit.

Especially young people who have been unable to work and build up substantial savings of their own, entering the housing market and starting to climb the property ladder can be very difficult, even under normal circumstances and especially under the current financial insecurity around the world. Parents often have good intentions and want to help their children be able to start their adult lives, and help them move out of the house, but are not always able to do so.

Way For Parents To Help

One way that lets parents prepare their children for their adult lives in a financial way is through a Junior ISA, a form of savings launched by the government last fall. It is a way for parents to save long term for their children, to help them to achieve things like attending university, or buying a house or a car when they grow up.

Parents, friends and relatives of the child can all contribute towards the account, with the maximum amount per year being £3,600. All the interested earned from the account, such as interest rate, is automatically re-invested into the account tax free, meaning that even modest savings can grow to a sizeable nest-egg by the time the child turns 18.

The Junior ISA is offered by many different providers over the country, such as the Red Rose Junior ISA. It is a good idea to regularly compare accounts online, and transfer funds if a more lucrative opportunity presents itself.

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