The Broker: Mortgage advice from the experts mouth - 'Helping your kids get on the ladder'
Posted on 19 July 2016 by
I want to help my children on to the property ladder. What’s the best way of me helping them to secure a mortgage?
Ah! The bank of Mum and Dad is open! Reckoned by L&G to be worth around £5billion this year, it is helping to fund 25 per cent of mortgages in the UK. This is one of the hottest potatoes in the mortgage/ housing market at the moment and with the uncertainty in the buy-to-let sector giving first-time buyers a clearer run, now could be an excellent time to help the little darlings stand on their own two feet. In this particular scenario, there are quite a few ways to skin the proverbial cat, including the traditional gifting of the deposit, acting as a guarantor, going on the mortgage as a joint mortgage, or even having a charge put on the parents’ home.
However, some may be more appealing than others. Gifting is the most popular way (57 per cent), and the more you gift them, the lower the loan-to-value and the cheaper the rate they’re likely to be able to get. A big gift will also allow them to benefit from slightly more lenient lending criteria. The big downside though is that control of your money is given away. Another option, is to go on the mortgage with your child, to use your income to boost theirs.
However, there are a couple of downsides to this. You still need to be in employment and young enough that the term of the mortgage is not affected by your retirement plans. Also, the new lender will have to take into account the affordability, all of your existing commitments, including any current mortgages. Then there’s tax, as the new property most likely will classified as a second home, which brings capital gains tax on any profits as when it’s sold, plus it will probably come under the three per cent stamp duty surcharge too. You’re also linked to your child’s credit record, and any issues on either side could have unfortunate consequences.
One of the more popular ways to help your offspring into a home of their own without saying au revoir to your hard-earned savings, is Barclays’ Family Springboard mortgage whereby your children could get a mortgage up to 100 per cent of the property value. Although the mortgage on the property is 100 per cent of the purchase price, you put up to 10 per cent of the purchase price into a savings account in your name, which is tied up for three years, after which time, as long as the mortgage has been conducted satisfactorily, you get your money back (plus interest) and it’s still yours to do with as you wish. The account pays interest at the Bank Rate plus 1.5 per cent. This means that you have helped your children onto the property ladder, but retained control over your savings. All in all though, I would always recommend speaking to a mortgage broker.
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