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Mortgages if the bank of mum and dad is struggling…

The number of young professionals relying on their parents’ finances to buy their first property has risen dramatically in recent years. Two thirds of first time buyers currently say they cannot afford to buy a house without turning to the “bank of mum and dad,” double the figure of five years ago, according to the National Housing Federation. Alongside this house prices have increased by 26 per cent since early 2009, and 68 per cent in London, bringing the average house price nationwide to £188,559.00.

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According to Lloyds Bank parents pay £13,281.00 on average to fund their children’s first step on the property ladder, giving their offspring a collective £8 billion in deposits each year. But what are the alternatives?  Some specialist mortgages are catering for first-time buyers by offering some alternatives.

If a parent can’t or doesn’t want to offer cash they could use their property as collateral. Aldermore’s Family Guarantee mortgage lends up to 100 per cent of the purchase price by taking a collateral guarantee on a parent’s home. National Counties offers the Family Mortgage for borrowers with a 5 per cent deposit. They need extra security in the form of parental cash savings or spare equity in their home.

Parents can also act as guarantors although traditional guarantor mortgages have become increasingly thin on the ground and lenders typically want to see that a child is likely to be able to take on the mortgage in their own right.

Then of course both generations could take out a joint mortgage – and informally agree the repayments. Most High Street lenders are happy to allow this, but for tax reasons, the ownership should be structured as “tenants in common”, where ownership is weighted in favour of the child. Otherwise, because they are not living in the property, the parents could face capital gains tax bills on their share. None of this is particularly easy to navigate but Enable’s IFA’s in Bishop’s Stortford can try and help you find your way.

Your home could be at risk if you do not keep up your mortgage repayments. 

Issued by: Enable Independent Financial Life Planners
25c North Street, Bishops Stortford, Herts CM23 2LD
Telephone: 01279 755950 – Fax: 01279 657339
Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Conduct Authority.
It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact us.

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