Gavin Richardson explains what the options available to you are if you are looking to help your children buy a home.
According to statistics from the National Union of Students nearly half of all graduates from the year 2015 have moved back in with their parents.
With the heavy burden of the average student debt standing at £44,500 and the average house in the UK listed at £216,750 (July 2016), it is no surprise that first-time buyers are struggling to get onto the property ladder. Here in the heart of Kent the average price for a two-bed property currently stands at £301,808, moving upwards the closer you get to London.
However, panic not.
You needn’t reconcile yourself to sharing your bathroom forever with your offspring, nor do your children need to give up on the hope of ever owning their own homes. Whilst current interest rates means saving for a deposit is hard, it also means that borrowing rates are at an all-time low which is good news if you are thinking of helping your children get onto the property ladder.
Here at Mortgages for Business we can help you navigate the market and find the best solution for you and your offspring.
Nearly all lenders will accept a deposit that has been provided as gift from a parent, however some lenders will still require the applicant to raise 5% of the purchase price without assistance. In fact, according to data from Legal & General the “Bank of Mum and Dad” will help finance 25% of all UK mortgage transactions this year, totaling up to £5bn worth of lending at an average of amount of £17,500 per purchase. To put this in to context, if the “Bank of Mum and Dad” was to become a formal business, it would be a top 10 UK mortgage lender.
Generally speaking lenders will also accept gifted deposits from other close family members.
Unfortunately, not everyone is able to rely on this type of deposit, so what other options are available?
Remortgaging your own home to provide a deposit
This is an extremely common way for parents to raise a gifted deposit as remortgaging is a fairly cost effective form of capital raising. Many lenders will offer the borrower a free valuation and free legal transfer service as part of the deal. Be aware that the number of lenders available gets more restrictive if the term of the remortgage extends beyond your retirement age and further still if the end date is past your 75th birthday.
A guarantor mortgage is where the liability for the mortgage rests with another person (i.e. the parent). There are still some guarantor mortgages available on the market. Traditionally the ‘guarantor’ (parent) would be responsible for repaying the whole mortgage if their child was to default on payments; however, there are now options out there where there is a limit on the amount for which the guarantor is responsible. This type of mortgage requires careful negotiation as lenders have a variety of differing criteria that must be met such as acceptable job types, and age and lending term limits.
Ever considered buying a property with your child? Subject to meeting the criteria which includes affordability, credit scores etc. this could be an option for you. This type of mortgage is available from all lenders, although it is worth bearing in mind that criteria vary from lender to lender. For example, Virgin Money will only accept a maximum of two applicants – which doesn’t help parents assisting their daughter and son-in-law, whereas Clydesdale Bank will accept four applicants.
Joint borrower and sole proprietor mortgage
A newer, less common option that allows two people to be party to a mortgage (parent and child) but only one (the child) to be the beneficial owner.
This newer style of mortgage where both sets of income are necessary to satisfy the lender’s affordability requirements has advantages for both the parent and the child:
- For the parent the most obvious is that the transaction will not incur the new Stamp Duty surcharge introduced on 1 April 2016 because the title of the property is in the sole name of the second applicant – the child.
- For the child the obvious benefit would be sole ownership and the benefit of having their parent’s income to help satisfy affordability assessments.
If any of the above is of interest, do get in touch to talk through how the different options might work for you and your children. My direct line is dial 01732 471613 or send me an email.
Remember rates in general are very low at the moment and there are many deals that come with incentives such as cash back offers, free valuations or both!
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19th October 2016