Young people trying to get on the property ladder are relying more and more on the ‘bank of mum and dad’ to help with their mortgage deposit. We are told that one in three first-time buyers expects to ask their family to help with the purchase of their first property.
Some parents are in the fortunate position to be able to help their children with a mortgage deposit, but this is not the case for everyone.
Luckily, there are alternative options for parents who still want to give their offspring a helping hand.
What are the mortgage options available to you?
Here are four of the most popular options for parents who want to help their children onto the housing ladder.
Joint borrower/sole proprietor mortgage
These types of mortgages enable you as the parents, to help your child by one of you going on the mortgage. This helps by using your income to boost the overall affordability. It is important that you are not named on the title deeds at The Land Registry. This way you will not have to pay the additional 3% stamp duty surcharge on second properties, which was recently introduced. Furthermore, you also won’t have to pay any capital gains tax when the property is sold.
The downside is that if you want to borrow extra money, remortgage or move home, then your child’s mortgage will have an impact on your own overall affordability.
On the upside. If your child can prove to the bank they can afford the mortgage in their own right at a later date, then you can be released from your commitments.
A family springboard mortgage is fairly new to the mortgage market. This allows first-time buyers to take out a mortgage without a deposit. Instead, you as their parents pay a 10% deposit into a savings account linked to the mortgage.
At the end of the three-year term, as long as your child has kept up with the repayments, you as the parents get your money back with interest.
The rates on these type of mortgages are not normally the lowest. It pays to check what the difference in rates would be if you used the money for the actual deposit and therefore your child might get a much lower rate of interest. However, you will have lost control over your savings.
With a guarantor mortgage, parents or a close relative cover any repayments missed by the borrower. Although this may seem a very straightforward option, it is not very popular with the mortgage lenders. The lender often finds it difficult to enforce if the payments are not forthcoming.
Taking equity out of the family home
As the parent, you could remortgage your own property to raise the mortgage deposit for your child’s new home. This is the most common form of withdrawal from the ‘bank of mum and dad’.
This option can also be the cheapest as often you as the parent have a property which has got some sizeable equity. This means you both can take advantage of some of the lowest rates available.
Many lenders will accept gifted deposits, but this does mean you are losing control of the funds and you will have a bigger mortgage on your home.
How Anstee & Co can help you with a mortgage deposit.
Whether you are the parent or looking for help from your parents it pays to consider your mortgage options. At Anstee & Co we are Independent Financial Advisers (IFA’s). This means that our mortgage advisers look at all the options available and providing unbiased mortgage advice. We are working on your behalf.
The initial fact-finding meetings are at our expense. We will provide you with a written quote before we undertake any work on your behalf. Only when we have secured a mortgage for you will we make a charge of £395.00.
Meetings can be arranged at a time and place convenient for you. This includes weekends and home visits.
- Kettering, Northamptonshire
- Stamford, Lincolnshire
- Towcester, Northamptonshire
- London, Pall Mall, Greater London
Also, our mortgage advisers live and make use of meeting rooms in-
- Market Harborough
Why not arrange a meeting by contacting us today.
AS A MORTGAGE IS SECURED AGAINST YOUR HOME, IT COULD BE REPOSSESSED IF YOU DO NOT KEEP UP THE MORTGAGE REPAYMENTS.