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.

Arts and Entertainment
Joe Cocker performing on the Stravinski hall stage during the Montreux Jazz Festival, in Montreux, Switzerland in 2002
musicHe 'turned my song into an anthem', says former Beatle
News
Clarke Carlisle
sport
Sport
footballStoke City vs Chelsea match report
Arts and Entertainment
theatreThe US stars who've taken to UK panto, from Hasselhoff to Hall
PROMOTED VIDEO
Life and Style
Approaching sale shopping in a smart way means that you’ll get the most out of your money
life + styleSales shopping tips and tricks from the experts
News
newsIt was due to be auctioned off for charity
News
Coca-Cola has become one of the largest companies in the world to push staff towards switching off their voicemails, in a move intended to streamline operations and boost productivity
peopleCoca-Cola staff urged to switch it off to boost productivity
Environment
Sir David Attenborough
environment... as well as a plant and a spider
Voices
'That's the legal bit done. Now on to the ceremony!'
voicesThe fight for marriage equality isn't over yet, says Siobhan Fenton
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    The Jenrick Group: Night Shift Operations Manager

    £43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

    SThree: Trainee Recruitment Consultant - LONDON

    £20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    SThree: Graduate Recruitment Consultant

    £20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...

    Day In a Page

    Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

    'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

    Yazidi girls killing themselves to escape rape and imprisonment
    Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

    Ed Balls interview

    'If I think about the deficit when I'm playing the piano, it all goes wrong'
    He's behind you, dude!

    US stars in UK panto

    From David Hasselhoff to Jerry Hall
    Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

    Grace Dent's Christmas Quiz

    What are you – a festive curmudgeon or top of the tree?
    Nasa planning to build cloud cities in airships above Venus

    Nasa planning to build cloud cities in airships above Venus

    Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all
    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there