With plenty of options out there for first-time buyers, Head of Mortgages and Insurance Stephanie Charman takes a quick look at five ways your clients can help their children with buying their first property.
In a time when we are continually facing property price increases, it may be hard for first-time buyers to save up enough money for a mortgage deposit or have adequate affordability to purchase their first home. To help, we have put together five ways your client may be able to help their child overcome the difficulties of getting onto the property ladder.
A simple way your client can help is to offer their child all or part of the required deposit. By raising the deposit from 5% to 10%, it could help improve the child’s affordability and reduce their monthly repayments. If they do decide to gift a deposit, they must sign a written agreement to confirm it is a gift, otherwise this may be treated as a loan by lenders and could affect the child’s affordability.
If they don’t have the cash available to gift to their children, they could consider equity charge. This is where they put a collateral charge on the family home instead of their child paying a deposit. It is however worth bearing in mind that not all lenders allow this in their criteria.
Another option is a guarantor mortgage where a charge is placed against your client’s home. This means that the amount their child can borrow is based on a combination of their own and their child’s income and assets. This could allow them to receive a 100% mortgage. However, there is associated risk, as they would be guaranteeing that the repayments are made. This means that the guarantor’s home could be at risk in the event that their child failed to pay.
Alternatively your client could consider a family offset mortgage. This type of mortgage enables parents to offset the value of their savings against their child’s mortgage so they may pay less interest. This is because their savings offset the sum of the mortgage that interest is charged on. As a consequence they may not always receive interest from their savings.
Perhaps the best way your client can help is to make sure their children are ready for the responsibility of applying for and having a mortgage. They could make them aware of budgeting and affordability so that their children have a realistic idea of what owning a home may cost them each month. After all it is not just the mortgage repayments they have to think about.
Experts have also reported that many younger people are unaware of the extra costs that arise on top of having a deposit, such as stamp duty and surveying fees as well as solicitor fees. If they need help to save money for this, the parent could help them open up a Help to Buy ISA or a Lifetime ISA. These ISAs will support their children with their savings whilst also receiving a 25% government bonus on limited deposits.
Additionally, they could offer advice on improving their child’s credit score, as this is a common problem when first time buyers apply for a mortgage. A credit score is often an important part of lenders’ underwriting process to decide whether the applicant is suitable for the product.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.