It is one of dreams that many of us have, buying a property and getting on the property ladder.
No more Mr. or Mrs. Landlord, our own little piece of property that we can do with what we wish.
However, while qualifying or a mortgage does not have to be that complicated, there is one small matter of a deposit, that can be an issues for some home buyers.
We may be able to afford a house and to repay the mortgage, but we need to save for a deposit, and then there also is the high cost of property. High prices also means a larger deposit.
Higher prices also means a larger mortgage, and once again the only way to reduce the mortgage amount is to have a larger deposit. And for many people, saving for the deposit is the real issue.
There are some mortgages available that will accept a lower deposit, but there can be some conditions attached to this, and once again you have the issue of a larger mortgage loan which means larger monthly payments.
Parents to The Rescue
Many parents want to help their children get on the property ladder, some may want to help them just to get them out of the house.
More and more grown kids are staying at home with their parents as they save up for a deposit to buy their own home. And with property prices going up, the brass ring always seems out of reach.
Some parents may help with a gift or loan of cold hard cash, giving their children the deposit to buy a property. However, not all parents have that kind of dosh lying about.
But there are other ways family can help.
Guarantor Mortgage: A guarantor mortgage is just what it states, a mortgage that has a guarantor on it; a guarantor is someone who will pay the monthly payments should the borrower fail to do so.
A guarantor can be a family member, such as your parents, an Aunt, Uncle, or grandparents. A guarantor can even be a good friend.
The main thing about a guarantor mortgage is that you may be able to borrow more, and by getting a large loan you can purchase a more expensive property.
The lender looks at the borrower’s income and expenses, but also at the guarantor’s as well, this si to make sure the guarantor can afford to repay the loan if they are needed to do so.
Joint Mortgages: Joint mortgages are loans that are in both names, which could be the son or daughter, and their parents.
These types of mortgages allow the borrowers to get a larger loan amount due to the parents income(s) being considered as well as their child’s, who is the main borrower.
One downside to this type of loan is that if the parent or parents already own a home, this would be considered a second home, and so would be subject to the higher stamp duty for second homes.
Offset Mortgages: These types of mortgages are where a family ember may have savings that they can pledge as an offset to the loan.
An example may be your parents have £30,000 in savings, and you want to buy a £150,000 property. By pledging the £30,000, you only need a mortgage of £120,000, which reduces your monthly mortgage payment.
The only downside is those that pledge their savings lose out on any interest they may earn, however, there are some mortgage loans that will pay interest on the money pledged, and only hold the savings for a set period of time as it is expected that the property will appreciate or go up in value.
Gifted Equity: If a parent does not have a huge pot of savings, they may have a huge pot of equity built up in their own property. They can gift this equity in different ways.
One way is to sell the property they have at a reduced price, which reduces the amount of mortgage their children may require to buy the property, and instantly gives them equity in the property.
If a property is valued at £150,000, and a parent owes £50,000, and they sell the property for £100,000, they can pay off their own mortgage loan, and their children only need a £100,000 mortgage for a property valued at £150,00.
Another way to gift equity is to put some of the equity in their property as security for the new mortgage loan their children are taking out to buy their own property.
If a parent has £100,000 equity in a property, they may pledge £50,000 of it as security on a new mortgage their children are taking out. This security has a lien against their property, and should the children default on their own mortgage, it could put the parent’s home in jeopardy.
The time frame for the charge against the parent’s home can be a set time, say 10 years.
So there are some ways parents can help their children get on the property ladder, by giving them a little boost up the way.