This month property expert David Leake of Housesetc explains the ways in which parents can help their offspring on to the property ladder.
First-time buyers are turning in increasing numbers to ‘the bank of Mum and Dad’ in order to get a foot on the property ladder.
One of the main reasons parents are keen to help is to improve their child’s credit rating by acting as a guarantor or providing a deposit. This in turn will help them get a better mortgage rate.
Here are some methods to consider:
A parent or close family member guarantees the mortgage debt. If the buyer misses their mortgage repayments the guarantor would have to cover them.
Family offset mortgages
Parents or grandparents put their savings into an account linked to their child’s mortgage. The money in the account is then deducted from the mortgage, making repayments cheaper.
Family deposit mortgage
A family member deposits cash in a special savings account and the money is then held as security against the mortgage.
Flexible family mortgages
A parent or family member can use some of the value in their own property as security. Another option is for the family member to place savings in an offset account which reduces the amount of the mortgage on which interest is charged.
The parent gives a deposit to their child for the purchase of property.
Both the parent and child are named on the mortgage and deeds. The size of the loan will be based on the earnings or assets of both parent and child and if one of them stops paying, the other one will become liable for the debt.
The best way to find the right mortgage is to seek help from an Independent Mortgage Broker. There are two types; those who use a panel of lenders and those who search the whole mortgage market to find the most suitable lender.
For first-time buyers, or people with a poor credit history, a mortgage broker will offer advice on how to build a credit score that attracts lenders.
As there is a risk of repossession if mortgage payments are not maintained, it is always important to make an informed choice. Your home may be repossessed if you do not keep up repayments on your mortgage.