Keeping it in the family

First-time buying is getting increasingly difficult but Stephen Pritchard says there are ways your relatives can help

The average house in the UK now costs £154,000. As a result, first-time buyers are significantly older than they were 10 or 15 years ago. According to the Council of Mortgage Lenders, three quarters of people under 25 want to own a home in 10 years' time. Only 37 per cent want to own a home now. Rising property costs present would-be first time buyers with two choices: wait until they can save a significant deposit and their incomes rise sufficiently to support a large mortgage, or look for a more radical way to get on the property ladder.

The average house in the UK now costs £154,000. As a result, first-time buyers are significantly older than they were 10 or 15 years ago. According to the Council of Mortgage Lenders, three quarters of people under 25 want to own a home in 10 years' time. Only 37 per cent want to own a home now. Rising property costs present would-be first time buyers with two choices: wait until they can save a significant deposit and their incomes rise sufficiently to support a large mortgage, or look for a more radical way to get on the property ladder.

Buying a property jointly with parents or enlisting the support of relatives as a guarantor are two ways that can help first-time buyers bridge the financial gap. A joint mortgage with a close relative will increase the budget for buying, provided the supporting relative has a higher income. Banks and building societies calculate the amount they will lend on a "salary multiple". This is typically three or three-and-a-half times a single applicant's salary, or two-and-a-half times two buyers' joint salaries.

Arranging a joint mortgage with someone who is not going to be living in the property, however, can be rather more difficult than for a couple or even two friends living together. Not all lenders will be supportive of mortgage applications involving a parent or other relative, so the services of a mortgage broker might be necessary to track down a source of funds.

According to Paul Fincham, spokesman for the Halifax, there is not a specific set of rules governing joint mortgage applications, where one borrower is a relative not planning to live in the house. Instead, the amount the bank will lend is based on a combination of standard lending multiples, and affordability.

The Halifax, along with most other lenders, calculates affordability by taking a borrower's income as a starting point, and deducting expenses such as living costs and, most critically, other debts.

Borrowing with a parent who has already paid off his or her mortgage should pose relatively few problems. But if the parent has debts or a poor credit score it will make it much harder to find a deal. If the parent taking out the mortgage has a high enough income to support their own and their sibling's mortgage repayments, it should be possible to find a lender. But if the parent's income is low, would-be buyers might struggle.

Fincham points out that in the case of a joint mortgage application, the lender will want to see a detailed breakdown of income and expenditure for everyone who will be on the mortgage, and they also recommend that all parties to the mortgage take their own, separate legal advice. This is important, as everyone on the mortgage deeds is "jointly and severally" liable for the debt. If one buyer falls behind with payments, the other has to meet the shortfall. The good news is that if applicants meet all the criteria, they can choose from the bank's full range of mortgage deals.

As an alternative to buying a home as joint purchasers is for first-time buyers to ask a parent or other relative to act as a guarantor of the mortgage. A guarantor is not an owner of the property, so in some respects the process is a little more straightforward than joint ownership.

There would, for example, be no tax implications when it came to selling the property. With joint ownership, the non-resident buying partner could face a capital gains tax bill, as the property would not be their main residence.

Even so, lenders caution that acting as a guarantor is not something to be taken lightly. The guarantor is responsible for the full mortgage repayments, should the buyer default. For this reason, any lender will want to ensure that the repayments are affordable both to the borrower and to the guarantor. Nor will having a guarantor necessarily increase the size of the mortgage a first-time buyer can raise as the guarantor will not contribute towards the repayments.

Where a guarantor is useful is where the main borrower lacks the financial track record to arrange a loan, either because of never having borrowed before or because of being in a new job.

Banks and building societies may be more flexible towards borrowers with a proven career path: professionals such as lawyers, doctors or architects whose incomes grow according to a predictable pattern when they qualify and a guarantor or joint buyer may help them bridge the gap to a better property. But even then, lenders will want a guarantor to be a close family member. For a lender to agree to a guarantor mortgage, they want to see evidence of financial mentoring, not just the legal paperwork.

Voices
The Sumatran tiger, endemic to the Indonesian island of Sumatra, is an endangered species
voicesJonathon Porritt: The wild tiger population is thought to have dropped by 97 per cent since 1900
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
Sport
Van Gaal said that his challenge in taking over Bobby Robson's Barcelona team in 1993 has been easier than the task of resurrecting the current United side
football
News
news
PROMOTED VIDEO
Arts and Entertainment
Beast would strip to his underpants and take to the stage with a slogan scrawled on his bare chest whilst fans shouted “you fat bastard” at him
musicIndie music promoter was was a feature at Carter gigs
Arts and Entertainment
Story line: Susanoo slays the Yamata no Orochi serpent in the Japanese version of a myth dating back 40,000 years
arts + entsApplying the theory of evolution to the world's many mythologies
News
Performers dressed as Tunnocks chocolate teacakes, a renowned Scottish confectionary, perform during the opening ceremony of the 2014 Commonwealth Games at Celtic Park in Glasgow on July 23, 2014.
news
Life and Style
Popular plonk: Lambrusco is selling strong
Food + drinkNaff Seventies corner-shop staple is this year's Aperol Spritz
News
Shake down: Michelle and Barack Obama bump knuckles before an election night rally in Minnesota in 2008, the 'Washington Post' called it 'the fist bump heard round the world'
newsThe pound, a.k.a. the dap, greatly improves hygiene
Arts and Entertainment
La Roux
music
Arts and Entertainment
Graham Fellows as John Shuttleworth
comedySean O'Grady joins Graham Fellows down his local Spar
News
people
News
Ross Burden pictured in 2002
people
News
Elisabeth Murdoch: The 44-year-old said she felt a responsibility to 'stand up and be counted’'
media... says Rupert Murdoch
Arts and Entertainment
tv
Extras
indybest
Sport
Arsenal signing Calum Chambers
sportGunners complete £16m transfer of Southampton youngster
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

    Entry Level Fund Accountant (Edinburgh)

    £17 - £20 per hour: Cameron Kennedy Recruitment: My client, one of the worlds ...

    SQL DBA/Developer

    £600 per day: Harrington Starr: SQL DBA/Developer
 SQL, C#, VBA, SQL Server, ...

    Risk Analyst - VBA/EXCEL

    £300 - £600 per day: Harrington Starr: Risk Analyst Access, EXCEL, VBA, RISK, ...

    Market Access Analyst (FIX 5.0, Equities, Derivatives)

    Negotiable: Harrington Starr: Market Access Analyst (FIX On-boarding, FIX 5.0,...

    Day In a Page

    The children were playing in the street with toy guns. The air strikes were tragically real

    The air strikes were tragically real

    The children were playing in the street with toy guns
    Boozy, ignorant, intolerant, but very polite – The British, as others see us

    Britain as others see us

    Boozy, ignorant, intolerant, but very polite
    Countries that don’t survey their tigers risk losing them altogether

    Countries that don’t survey their tigers risk losing them

    Jonathon Porritt sounds the alarm
    How did our legends really begin?

    How did our legends really begin?

    Applying the theory of evolution to the world's many mythologies
    Watch out: Lambrusco is back on the menu

    Lambrusco is back on the menu

    Naff Seventies corner-shop staple is this year's Aperol Spritz
    A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

    A new Russian revolution

    Cracks start to appear in Putin’s Kremlin power bloc
    Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

    Apartheid’s sadistic killer that his country cannot forgive

    The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
    Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

    Standing my ground

    If sitting is bad for your health, what happens when you stay on your feet for a whole month?
    Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

    Greene prays for chance to rebuild after injury agony

    Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
    Israel-Gaza conflict: Secret report helps Israelis to hide facts

    Patrick Cockburn: Secret report helps Israel to hide facts

    The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
    The man who dared to go on holiday

    The man who dared to go on holiday

    New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
    Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

    Best comedians: How the professionals go about their funny business

    For all those wanting to know how stand-ups keep standing, here are some of the best moments
    The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

    The Guest List 2014

    Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
    Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

    Jokes on Hollywood

    With comedy film audiences shrinking, it’s time to move on