Parents help first time buyers
06 Nov 2014
First-time buyers are increasingly relying on their parents to help them purchase their first home. Around 20% have either borrowed or were given money by family towards the initial deposit, with an average contribution of around £13,000 (source Scottish Widows). According to Santander Bank, some 80% of under 30 year-olds cannot afford to buy without some form of parental or other assistance.
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 – About 23% of 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 37, 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 feel free to contact us about this and we’ll help you explore your options in detail. Feel free to contact us by e-mail at [email protected] or call us on 0191 510 3323 or you can even arrange to pop in to our branch to speak with our indepedent mortgage adviser, Cherise.