First Time Buyers are Relying on the Bank of Mum and Dad More Than Ever. Find Out How!
Whilst it would seem that now is the perfect time for home-buyers to take their first steps onto the property ladder – what with interest rates on the decline and the number of help-to-buy schemes on the rise – many first time buyers are still having to rely on financial help from their parents to secure a home. A recent survey by Barclays Bank has revealed that in fact, one in three first time buyers are doing this.
Are you the parents of someone struggling to purchase their first home? Then read on, for information on the options available to you.
Give the ‘Gift’ of Cash
When borrowing from the ‘bank’ of mum and dad, the most common form of help often comes in the form of a straight cash contribution towards a home deposit. This type of financial help can be a great help to eager first time buyers, as long as it’s deemed a ‘gift deposit’ only. This means that you, the parent (or contributing family member), would have to claim no right to the property and the money isn’t a loan to be repaid.
With this type of financial assistant, inheritance tax is something to consider. If the person gifting the money was to pass away within seven years, then any amount over the lifetime limit allowed would make the deposit liable to tax.
Release Equity on an Existing Property
Are you aged 55 years or older, and mortgage free? If this is the case for you, then your child may be eligible for a lifetime mortgage. A lifetime mortgage essentially means that you would be releasing equity from your own property, which means your child may be able to secure a loan of up to 60% of your property’s value.
If further down the line you then decided to downsize, or if you passed away, the sale of the house would then pay off the loan.
Consider a Joint Mortgage
Another option is a joint mortgage, shared between both parent and child. The advantages of this particular mortgage are that both of your incomes would be combined, making it possible to borrow a larger amount of money towards a first home. Both of your names would be on the deeds and mortgage agreement, and of course, both of you would be responsible for the mortgage repayments. Quick reminder – if you do already own a property, a second mortgage would make you liable to pay a 3% stamp duty surcharge. Something to consider!
Act as a Guarantor
If the problem for your child isn’t raising the funds for a deposit, but having a salary sufficient enough to secure an adequate mortgage, why not act as their guarantor? As guarantor, both the parents’ and child’s income is combined to satisfy lenders. Parents may even agree to use their property as collateral, giving low income applicants a better shot at securing the mortgage they need. Guarantor mortgages can be complicated however, so never make a decision without speaking to a professional mortgage advisor first.
Set up An ISA
Some parents choose to set up a junior ISA account for their young children, to help give them the best start in life. For older children looking to get a foot on the property ladder, parents can continue to do something similar, by paying into a help to buy ISA. Up to £200.00 a month can be deposited into the account each month and once it’s time to buy a property, your child can apply for the government ‘top-up’, as the scheme requires that the government contribute £50.00 per every £200.00 saved in the ISA.
Of course, not everyone can offer financial help towards their child’s or family member’s first home. All any of us can do is offer support in any way we can – whether that’s with practical advice, a helping hand come moving time or a financial gift. However, if you are thinking about offering financial support, then the above options are undoubtedly the best way to go.
Want to know more? For friendly and expert mortgage advice, you can contact Amber Mortgage Solutions today. Call us on 01702 619221 or contact us online.