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
Sunday 18 December 2005
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.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC
- 2 Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
- 3 London restaurant 34 creates champagne glass modelled on Kate Moss’ left breast
- 4 ALS ice bucket challenge co-founder Corey Griffin drowns, aged 27
- 5 James Foley beheading: Fox news presenter Megyn Kelly annoyed by Ferguson update during broadcast about murdered journalist
Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Isis threat: Cameron wants an alliance with Iran
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
Bin bag full of cats' heads discovered near Manchester's Curry Mile
Disgusting, frustrating, but intriguing: how the country really feels about its politicians
iJobs Money & Business
£25000 - £35000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...
£25000 - £35000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...
£30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst (Machine Lea...
£45000 - £55000 per annum: Harrington Starr: UNIX Application Support Analyst-...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony