Four ways to help your children onto the property ladder by Howard Mortgages
It’s getting harder and harder for people to get onto the property ladder. As a parent, when you see your child struggling to get on the first rung, you’ll naturally want to help.
Even at the average price of property in the UK – £270,000 as of November 2021 – and even with a 95% mortgage, that still leaves your children needing £13,500 as a deposit, plus Stamp Duty, legal fees and moving costs.
If they want a better interest rate, or if they want to buy a more expensive home, it doesn’t take much to see the difficulties they face. Even with mortgages of 4.5x someone’s salary and longer-term loans, the upfront costs are still a barrier for many buyers.
As affordability has shrunk, The Bank of Mum & Dad has grown, with parents stepping in wherever they can. So, let’s take a look at some of the ways you can help your child buy a home and support their property progress.
Remember: everyone’s status is different, and every lender has its particular criteria, so do get in touch on 01803 554455 or hello@howardmortgages.co.uk for some expert and tailored advice for your circumstances.
PUT YOUR CHILD’S RENT INTO SAVINGS
If your children are still living with you at home, you could help them save for a deposit by putting some or all of the rent they pay you into a savings account.
As well as growing into a tidy sum, having a regular amount going out of their account will get them used to monthly expenditure and everyday commitments, which can come as a surprise when first leaving home.
One of the side-effects of low interest rates is that returns on savings are also at all-time lows. But if you lock the money away in something like a regular savings account or an ISA, it will at least be safe and sound.
It may be worth asking your children how confident they are in leaving the money alone. If they’re unsure, you might agree to open the account in your name, or at least for you to keep the access details.
Watching their deposit grow can be a real motivator and may even inspire your child to add some extra each month as the possibility of owning their own home gets nearer and nearer.
BUY THE PROPERTY TOGETHER
If your child doesn’t yet earn enough to get a mortgage on the home they want, and you have enough income to make up the shortfall, buying the property together could be the answer.
Even on a joint mortgage with a first-time buyer, buying a second home usually attracts an extra 3% Stamp Duty. You can also be liable for Capital Gains Tax if you’re still an owner when the property is sold.
The solution lies in a Joint Borrower Sole Proprietor Mortgage. Here, a lender takes into account the income of you and your child, but your child is registered as the sole owner on the title deeds. This means the property is no longer seen as a second home, so the additional taxes no longer apply.
Remember that if payments fall behind on a joint mortgage, both your credit ratings will be affected. It’s essential to have an agreement that, if either of you ever runs into difficulties, you’ll talk to each other straight away before the mortgage falls into default.
GET A UNIVERSITY MORTGAGE
Most students see homeownership as a distant possibility and certainly not something they’re likely to achieve while still at university. But there’s a mortgage that allows them to own their own home and earn an income from renting out rooms while they study.
A University Mortgage (also known as a Student Mortgage) is loaned on a Joint Borrower Sole Proprietor basis, meaning your child will be the sole owner on the deeds to avoid the extra Stamp Duty and Capital Gains Tax liabilities of second homes.
Lenders assess the potential rental income of the property, as well as any parental income, and the property must be near your child’s university.
Parents are required to offer security, and this can be in the form of equity in a property, depositing funds into a locked account, or a combination of both.
So your child can choose who they live with, discover the responsibilities of homeownership and even learn what it’s like to be a landlord, all while being a student! Quite a head start on life.
GIFT YOUR CHILD THE DEPOSIT
It’s possible that your child earns enough to get a mortgage but doesn’t have the money for the deposit. And saving up can be a hamster wheel of difficulty if they’re paying rent every month.
According to Which, £230million was gifted in deposits in 2020, and over £500million this year, so The Bank of Mum & Dad is not only very real, it’s become an integral part of the property market.
When accepting a gifted deposit, a lender will ask you for certain information, including:
the source of the funds (UK, EU, or further afield)
written confirmation from you that the deposit is a gift
a signed declaration from that you’ll have no financial interest in the property
If the deposit is a loan, you’ll need to confirm that it only needs to be repaid when the property is sold. Otherwise, a lender will class it as a financial commitment (like a credit card or personal loan) which could reduce the amount of mortgage they’ll give to your child.
FINAL WORDS
Helping your child onto or up the property ladder is a gift that keeps on giving. You’ll be instrumental in your children moving on in life, building a good credit rating and having a home they can truly call their own.
If you’d like to explore how you can help your children buy a home, we’d love to hear about your plans and talk you through the options available. Why not book a no-obligation consultation on 01803 554455 or hello@howardmortgages.co.uk – we’re here to find you the very best deal that’s exactly right for you.
