How the bank of mum and dad can help first time buyers

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22 Sep 2017

How the ‘Bank of Mum and Dad’ can help first time buyers

Author: Greg May

In recent years, it has become harder and harder for first time buyers to get onto the property ladder. House prices have increased faster than wages and, with less stock on the market, they are facing increased competition from other homeowners and buy-to-let investors.

So it comes as no surprise that the so-called ‘Bank of Mum and Dad’ currently contribute 26% of funds to the UK housing market – if they were a bank, they would be classed as the UK’s 9th biggest lender to first time buyers!

If you are a parent, there a number of ways you could help your children (or, grandchildren) buy their first home and some of these options won’t cost you a penny…

By gifted deposit

Whilst it might seem simple to loan your child money to fund a deposit, typically mortgage lenders prefer the funds to be gifts rather than loans. The key difference between a gift and a loan is that a gift is given without the intention of getting it back.

Additional borrowing on the family home

If your savings are tied up in investments or just simply aren’t large enough to fund a deposit, you could release equity from your own home, providing of course that you own it. By mortgaging your property if you own it outright or increasing the mortgage amount (as long as you can afford the increased repayments), you could raise funds to go towards your child’s deposit.

Guarantor mortgages

Even with a deposit, those buying their first property might struggle to pass the affordability checks. By acting as a guarantor on your child’s mortgage you make their application a more attractive option for lenders and could enable them to borrow more. Although you must ensure that you are able to afford both your own financial commitments and those of your child, before undertaking this option.

Joint mortgage – sole ownership

Whether you are employed or retired, your income could go towards your child or grandchild’s mortgage. The mortgage would be in both of your names but the ownership of the property would remain with your child so you won’t be liable for second home stamp duty. This option might not help them fund a deposit but will increase the amount they are able to borrow.

The above options aren’t something to be considered lightly and we strongly recommend seeking professional financial advice before taking action. We would all love to help our children but it is important to ensure that the option is affordable and clear to all parties involved.

To find out more about how you could help your child climb the property ladder, call Romans Mortgage Services on 0118 3219 536.

Your home may be repossessed if you do not keep up repayments on your mortgage.

There will be a fee for mortgage advice.  The actual amount you pay will depend upon your circumstances.  The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.

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