Increasingly, parents are helping their children on to the property ladder.
Whilst this isn’t a problem if you have a large pot of cash, clearly this is not the case for most parents.There are however four main options for parents who want to help their children onto the housing ladder without a large deposit available to them.
The Springboard Mortgage allows first-time buyers to take out a mortgage without a deposit. Instead their parents pay a deposit (typically 10%) into a savings account linked to the mortgage.
At the end of the three-year term, as long as the child has kept up with repayments, the parents get their money back with interest.
If the borrower misses a payment, the lender will retain their parents’ money for a longer period of time than initially agreed.
Joint borrower/sole proprietor mortgages
These mortgages enable parents to help their child by one of them going on the mortgage using their income to boost the overall affordability, without being named on the title deeds at Land Registry.
The main benefit of this option is the parent does not have to pay the additional 3% stamp duty surcharge on second properties, which was introduced last year. They also won’t have to pay any capital gains tax when the property is sold.
The downside is if the parent wants to borrow extra money, remortgage or move home, then their child’s mortgage that they are party to will have an impact on their overall affordability.
With a guarantor mortgage, parents or a close relative cover any repayments missed by the buyer.
Some of these can be purchased at 100% loan-to-value so no deposit is required.
Taking equity out of the family home
Finally, parents could remortgage their own property to raise the deposit for their child’s new home.
This is the most common form of withdrawal from the ‘bank of mum and dad’.
Whilst we are not registered to provide advice on specific mortgages we have a number of excellent partners who have many years’ experience in mortgage and investment advice. For further assistance, in the first instance contact your local Burgis & Bullock office on 0845 177 5500 or use our on-line contact form.