If you’re keen to help your children get a foot on the property ladder but are wondering how best to do that, we’ve suggested some things for you to consider.
With ‘bank of mum and dad’ becoming the best option for some first time buyers – including older children who have long since cut the apron strings, it’s important to know the implications for all involved.
One of the main reasons parents are keen to help is to improve on their child’s credit rating by acting as a guarantor or providing a deposit. This will help them get a better mortgage rate. These options are different from giving a financial gift of money (which could have a tax implication.)
If parents go down the route of offering to deposit a lump sum with a mortgage lender, as a form of financial guarantee, this will have the least tax implications because the funds are only there to act as security. It is the same if parents offer their own property as security.
So here are your options;
Guarantor mortgages With a guarantor mortgage, a parent or close family member guarantees the mortgage debt. This means that if the buyer misses their mortgage repayments the guarantor will have to cover them.
Family offset mortgages With family offset mortgages, parents or grandparents put their savings into an account linked to their child’s mortgage. The money in the savings account is then deducted from the mortgage, making the child’s repayments cheaper.
Family deposit mortgage With family deposit mortgages, a family member deposits cash in a special savings account and the money is then held as security against the mortgage.
Flexible family mortgages A parent or family member can use some of the value in their own property as security. Another option is for the family member to place savings in an offset account which reduces the amount of the mortgage on which interest is charged.
Gifted deposits The parent gives a deposit to their child for the purchase of property.
Joint ownership In this case both the parent and the child will be named on the mortgage and the deeds. The size of the loan will be based on the earnings or assets of both parent and child and if one of them stops paying, the other one will become liable for the debt.
With so many options to consider it’s important that you get expert advice. Mortgage Advice Bureau are available through all of Petty’s branches and are a leading mortgage network as well as the most recognised intermediary consumer brand. The expert advice they offer, combined with the volume of mortgages that they arrange, places them in a very strong position to ensure that our customers have access to the latest deals available and receive a first-class service.
As there is a risk of repossession if mortgage payments are not maintained, it is always important to make an informed choice. Your home may be repossessed if you do not keep up repayments on your mortgage.