A little of the family fortune and your child won't be frozen out of housing

Joint mortgages, 'guarantor' deals... how parental support can counter the problem of high prices

Most twenty- and thirtysomethings who dream of their own home would trade all their Christmas gifts for a first foot on the property ladder.

They won't find it under the tree, perhaps, but they may be pleased to know that the goodwill of their parents isn't just for Christmas. For a quarter of first-time buyers now rely on financial support from their families, says Helen Adams, the director of ParentAidNow .co.uk, a new advice website.

"Helping your child buy their first home is different to 20 years ago," she says. "As house prices have risen so far ahead of earnings, the support of parents has become even more necessary.

"There are also many more ways to help now," she adds, the first being the traditional one of giving your child the deposit.

If left to their own devices, it would take a first-time buyer four years and nine months to save the £7,652 that now equates to 5 per cent of the average property price, according to new research from National Savings & Investments (NS&I).

Any parent who can reduce the amount their child needs to borrow in this way will open the door to cheaper mortgage deals from high-street lenders.

An alternative for those with a monthly income is to take out a joint mortgage with their child and so boost the amount borrowed according to the lender's income multiples.

However, a joint loan means the names of both parent and child feature on the mortgage agreement - so each party will usually be jointly liable.

Note also that most lenders insist the parent's name appears on the property deeds, which can result in capital gains tax and stamp duty liabilities if the parent sells their part of the house to the child at a later date.

To overcome the tax hurdles, brokers and intermediaries have designed loans such as 1st Start from Bradford & Bingley (B&B). "This focuses primarily on the parent's earnings, allowing the first-time buyer to borrow four times their parent's income added to their own," says Duncan Pownall at B&B.

"But although their name will be on the agreement, the parent can choose to exclude it from the property deeds, which can help with potential tax liabilities."

Alternatively, a parent can act as a "guarantor" for the shortfall between what their child needs to borrow and what their salary permits.

If, say, they earn £20,000 a year, they can qualify for a £70,000 loan on a lender's income multiple of 3.5 times a single salary. If the mortgage required is £120,000, a parent can be guarantor for the other £50,000.

Some lenders, such as the Nationwide and Yorkshire building societies, now offer a guarantor facility across a broad range of standard mortgage products such as two-year fixes and discounted deals - provided the child shows the potential to manage the whole loan in the near future, usually within five years.

With most guarantor mortgages, parents will have joint responsibility for the whole loan. But with some deals, such as the one offered by Scottish Widows, they will have to guarantee only the shortfall sum.

Arrangements like these aren't always made to measure for all-comers. For example, the guarantor deal available from Newcastle building society is only for young professionals who anticipate a steep rise in earnings.

Elsewhere, the Co-op bank's new Parental Guarantor mortgage is available to all borrowers but has restrictions: the maximum amount that the parent can guarantee is just 1.5 times their salary.

However, the Co-op says it is flexible both about the relationship of the guarantor to the borrower - it doesn't have to be the parent - and the definition of income.

"We would look at any monthly dividend such as a salary, pension or even rent from a buy-to-let property," says spokesman Andy Hammerton. "Additionally, the parent does not need to feature on either the mortgage agreement or property deeds."

However, a special guarantor deed must still be signed that makes the parent liable with, or instead of, the borrower.

Even if your children have already bought a home, it's not too late for parents to step in and help. By switching the deal to a family offset mortgage, the parent's savings can be set against the child's loan, so reducing the amount on which interest has to be paid.

Yorkshire building society is the latest lender to launch a version of this arrangement, with a product called Offset Plus. "This type of mortgage might not help with getting on the ladder but it will considerably reduce the interest on the debt," says spokes- woman Tanya Jackson.

"Anyone, family or friend, can link their savings to the debt and retain full control of the money. Although they will not earn interest on it, this means that no tax is paid."

Mum's the word in getting a mortgage

Helly Seeley, a 26-year-old marketing manager, bought her first home - a studio flat in Ealing, west London - in September this year.

"I had no deposit and the property cost £152,500," she says. "At the time, my salary would not have allowed me to borrow that much."

Mortgage broker London & Country recommended she take out the Scottish Widows graduate mortgage, which comes with a guarantor facility.

"I never knew this type of mortgage existed. It allowed me to borrow 100 per cent of the value of the property, but it also meant my mum could act as a guarantor for the £40,000 shortfall between what I could afford and how much it cost."

Her mother, Kate, is in full-time employment and was comfortable with the arrangement, she adds.

"Ultimately it hasn't cost her a penny: I'm meeting the full repayments of £660 a month on an interest-only basis.

"When I come to the end of my two-year fixed-rate deal, I [will be able to] afford to borrow the full amount by myself, as well as switching to a repayment deal."

To protect her mother's financial commitment, Helly has also named her as a beneficiary on her life insurance policy, which she receives through her employer.

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

    £16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    Day In a Page

    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones