Top Up Loans February 28th, 2011
As first time buyers continue to struggle to get onto the first rung of the housing ladder, largely through being unable to raise sufficient deposit to meet lenders maximum loan to value levels, various solutions have been suggested to offer financial help and support to this sector of the housing and home owner loan market.
Many of these solutions involve parents taking on a responsibility for the loan in the form of a guarantor, or helping their children by giving them the required level of deposit from their own savings.
Whilst this is all well and good for those parents who have sufficient savings, many parents simply do not have the necessary level of savings to give to their children, or if they have, they may require them for their own financial plans, such as retirement planning.
Another solution which a number of lenders are now taking on board is that of a top up loan. This is an unsecured loan which is taken out by the parents of a first time buyer in order to provide a large percentage of the required deposit and allow their children to get a home owner loan for 80 per cent loan to value, making this a much cheaper loan option than a high loan to value product.
Hitachi Finance were the first to launch this type of product which offers parents a cheap loan of up to 15 per cent of the required deposit amount, at a rate of just 5.4 per cent for 12 years. These unsecured loans are only available to parents with a good credit history.
Although this is a way of parents to help their children, many feel that this type of loan is placing a risky burden on parents, as they are solely responsible for the loan repayments and could end up damaging their own credit rating in order to help their children, if they default on the loan.