How can I help my child get on the property ladder?
Principal mortgage adviser David Blake explains how parents can help their children buy a home
House prices have risen astronomically over the past few decades, especially compared with wages – so getting on the property ladder has become increasingly difficult. This is why so many first-time buyers are seeking help from the Bank of Mum and Dad.
The good news is that mortgage lenders have become much more innovative in this area, and there are now a range of options for first-time buyers and parents to choose from even if you don’t have the cash to provide a deposit upfront. These products are collectively known as ‘family assist’ mortgages.
One option is to simply include a parent on a joint mortgage application. Many lenders these days will allow up to four people to apply for a mortgage, basing their affordability assessment on the two highest incomes.
If parents are earning more than their children, this can make borrowing the amount required more feasible. It can also mean that the first-time buyer needs less of a deposit – often a stumbling block in today’s market.
Many lenders will now also give the parent a choice as to whether they’re named on the deeds of the property as well as the mortgage itself, which can help avoid higher stamp duty costs.
How much deposit is needed?
Most lenders insist on the buyer putting down a deposit of at least 5% of the property purchase price.
However, if your child hasn’t got enough saved up, some lenders will allow the parent to temporarily deposit their savings with the lender instead – this is known as a family deposit mortgage. Some mortgage providers also offer the option of taking a legal charge over the parents’ property instead of a deposit – this is a guarantor mortgage.
In theory, this means it is now possible to get onto the property ladder with no deposit at all. However, due to the increased risk the lender is taking on, this type of application will always require rigorous underwriting.
Can I protect my money?
Yes, and you should. I speak to lots of parents who want to gift or loan money to a child who is buying with their partner. They usually have no idea that they can potentially protect their gift or loan if their child’s relationship breaks down.
This isn’t often talked about because it doesn’t fall under the remit of mortgage advice per se. That said, a good mortgage broker will discuss this with you to ensure that everyone involved is happy and understands their options.
The type and source of deposit will always need to be declared to the mortgage lender and a solicitor can help with what needs to be drawn up from a legal perspective. Many lenders are comfortable with parents legally protecting their money, and some will allow parents to loan money as opposed to gifting it.
Are family assist mortgages more expensive?
No, not always. In fact, some family assist products offer incredible value for money and can really offer families a setup that makes sense for everyone involved.
Who is responsible for paying the mortgage?
Anyone named on a mortgage, whether they’re also named on the deeds of the property or not, is jointly and severely liable for the mortgage.
If you’re acting as a guarantor for the mortgage applicants, you will become liable for the mortgage in the event that they are unable to pay. This is a really important legal area that you need to be aware of and should seek independent legal advice on.
What happens if my circumstances change?
It’s important that when selecting a mortgage lender and product, consideration is given to possible future events, for example the parents’ circumstances changing so that they need their money back or want to take a mortgage out in their own names.
I would say that any family assist mortgage should be taken out with a view to the applicant themselves taking on the mortgage in full on their own at some point in the future.
I really like mortgage products that offer flexibility, because if one thing is certain in life, it’s that nothing is certain.
Can I have more than one mortgage?
Yes: in theory, there is no limit to how many mortgages you have in total. Some lenders have caps on the number of mortgages you can have but most are receptive to someone having two residential mortgages.
Of course, when a lender assesses how much they can lend to you, they are going to take into account any existing mortgages you have. If you’re named as a guarantor on a mortgage, regardless of whether you’re actually paying it or not, the lender will factor this into how much they will lend you.
Where do I start?
Speak to an independent mortgage adviser. They will be able to help you through the mortgage application process from start to finish and give you advice on the right options for you and your family.