First-time buyers are increasingly relying on their parents to help them purchase their first home. Around 27% have either borrowed or were given money by family towards the initial deposit, with an average contribution of around £18,000 in 2018 (down from up from £21,600 last year) with 79% of the money going to people under 30 (source L&G and Cebr).
However, shrinking equity and shaky pensions are making some parents consider more creative ways of helping their children without denting their retirement pot by mortgaging their own home. Here are some suggestions:
- Guarantor mortgages – Where first time buyers use their parents to guarantee their mortgage payments from the parents’ income.
- Joint mortgage with parents – Whereby the parents’ income is taken into account in the loan multiples, similar to the way in which a couple might buy a property.
- Offsets – A parent can invest money into a relevant savings account which offsets the child’s mortgage, thereby reducing the mortgage interest and monthly payments without losing access to their savings if they need it. Whilst the parents would not be earning interest, they would not however be paying tax on interest and the rate saved will usually be higher than the rate otherwise earned.
The age of the average first time buyer has now risen to 35, yet parents are still involved in helping their children take this crucial first step onto the property ladder. Fortunately the institutions are becoming increasingly creative when it comes to mortgages that include some parental backing.
So whether you are a parent or a “grown-up” child wanting to get onto the property ladder, and would like to discuss the options available to you, it’s worth talking to a specialist mortgage advisor. Please fee free to contact us about this and we’ll point you in the right direction to help you explore your options in detail.