One of the biggest challenges facing first-time buyers is raising a deposit, with the average down payment now £22,500, 57 per cent higher than the £14,300 needed ten years ago. Property portal Rightmove reports that over the same period, salaries have risen by only 31 per cent, underlining the challenges facing those trying to get on the housing ladder.
It is no surprise then that increasing numbers of first-time buyers are turning to the Bank of Mum and Dad. And even the Bank of Grandma and Grandad, to help them with a deposit and/or mortgage payments. New research from estate agency Savills reveals that the Bank of Mum and Dad will gift and loan a total of £25 billion over the next three years to help offspring onto the housing ladder.
Guarantor mortgages
Not every parent can help with a gifted deposit but the good news is that there are other options available. Guarantor mortgages, where the parent agrees to take responsibility for their offspring’s mortgage payments in the event that they can’t pay, are a popular choice. Lenders have various criteria that guarantors must meet. Such as age requirements and owning their own property, or having a high level of equity in their home.
There is risk involved with being a guarantor, that you are on the hook if your child can’t pay mortgage. Guarantors should therefore seek independent advice beforehand to ensure they understand what commitment they are taking on.
Joint borrower, sole proprietor mortgages
Another increasingly popular option is the joint borrower, sole proprietor (JBSP) mortgage. This is a way of structuring the purchase so that the parents’ income is taken into account along with the child’s when the lender decides how much they can borrow. But the parents do not go on the property deeds. So there is no stamp duty surcharge to pay (usually charged 3 per cent if purchaser already owns a property).
Seek advice
While it is understandable that parents and grandparents want to help offspring onto the housing ladder. It’s important to understand what you are getting into. There is a range of family-assistance mortgages available; at AWS Private Finance, we are whole-of-market, so have access to all the deals on the market. We can guide you through the process, finding the right deal for your family’s circumstances. Get in touch for more information.
