How Can I Help My Kids Get on the Property Ladder?
Written on 1 March 2017 by
With high house prices, tough affordability checks and the ever-increasing pressure on first-time buyers to save a hefty deposit, it can feel like it’s becoming more and more difficult to take that first step onto the property ladder.
Parents feel this strain too. We’ve heard of the “Bank of Mum and Dad”, however, unfortunately, asking parents for help putting down a deposit isn’t always an option.
If you want to help your child buy their first home, but simply can’t afford to give them the cash they need for a deposit, you may want to look at the other options available to you – there are more than you may have first thought!
We explain some of these below.
1. Guarantor Mortgage
With guarantor mortgages, you guarantee to meet the monthly payments on your child’s mortgage if they’re unable to. The amount your child can borrow is based on their income and yours; you’re assessed as a full applicant. However, you’re not registered on the title deeds of the property which means you have no ownership rights.
If neither you nor the borrower meet the monthly payments, then the lender could ultimately repossess the borrower’s property.
You can be a guarantor even if you have a mortgage on your home, but the lender will assess your disposable income after your existing mortgage payments.
Guarantor mortgages are quite rare nowadays, with many lenders now offering joint borrower sole proprietor mortgages instead.
2. Joint Borrower Sole Proprietor Mortgage
Joint borrower sole proprietor mortgages are very similar to guarantor mortgages. They both allow parents to help their children borrow more by using their income on the mortgage application without being named on the title deeds at Land Registry. This means that, in both circumstances, parents are assessed as borrowers but don’t own the property.
The difference between joint borrower sole proprietor and guarantor mortgages is that with a joint borrower sole proprietor mortgage, you’re considered a full borrower in all aspects, whereas with a guarantor mortgage, you’re only assessed as a borrower and simply guarantee to meet the mortgage payments if your child can’t. When you take out a joint borrower sole proprietor mortgage, you and the other borrowers are equally responsible for the mortgage and will receive notifications from the lender.
One of the main benefits of a joint borrower sole proprietor mortgage is that, if you’re a joint borrower supporting a first-time buyer’s mortgage application and you already own a property, neither you nor the actual buyer will face the Stamp Duty surcharge that’s applied on second properties.
3. Joint Mortgage
A lender will consider both your and your child’s income, after any monthly mortgage payments you may already have, when you apply for a joint mortgage. You and your child will be named on the mortgage agreement and will be equally responsible for meeting the monthly payments. You’ll also both be named on the deeds, making you joint owners of the property and giving you some power over any future transactions.
It’s worth noting that you’ll likely pay the Stamp Duty surcharge on second homes if you already own a residence.
4. Remortgage or Further Advance
If you have a mortgage on your own property, you could free up some cash by either remortgaging or taking out a further advance.
When you remortgage, you stay in the same property but take out a new mortgage with a new lender. This new mortgage effectively absorbs your current mortgage.
With a further advance, you approach your existing lender to borrow more money on top of your existing mortgage. This will typically take the form of a sub-account separate from your main mortgage account. This new, further advance sub-account will likely be on a different – often higher – rate of interest from the main mortgage account. Your further advance will also be secured on your own property like your main mortgage.
Both options come with the possibility that you may be able to adjust your mortgage term to keep monthly payments down. Before raising additional capital by remortgaging or taking out a further advance, it’s important you consider the impact that an increased borrowing would have on your standard of living and your retirement plans.
The main benefit of using funds from a remortgage or further advance to help your child onto the property ladder is that they enable you to assist with the actual purchase of the property. The main drawback is that you’ll likely lose control over the money once you give it away.
You can find out why lenders prefer that parents give money to their children as gifts, rather than as loans, in our blog post: First-Time Buyers: The Potential Issues with Parents Lending You Money.
6. Family Springboard Mortgage
If you do have some savings, but perhaps don’t want to put it all on a deposit then you could consider a Family Springboard Mortgage. This type of mortgage comes in 2 parts.
- The borrower takes out a mortgage that’s up to 100% of the property purchase price
- You as the “helper” open a savings account linked to that mortgage with the lender and put at least 10% of the property’s purchase price into this savings account as security
What’s neat about Family Springboard Mortgages is that they enable you to help your child buy a house even if they don’t have a deposit and, at the end of the fixed term, you’ll receive your money back with interest – as long as your child has kept up their monthly repayments.
There are some other options available to parents who want to help first-time buyers but they’re much rarer, less popular and tend to be a little more complex.
We can advise you on every option on the market right now, including the ones listed here.
Simply call us on 0330 433 2927 or submit an enquiry.
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.