Mortgage Clinic: How big a deposit does a first-timer need?
Wednesday 23 April 2008
'I inherited £70,000 after the sale of my late father's house, and I want to give some of it to my son as a deposit for a flat. But he's worried that his £24,000 income and financial problems as a student will harm his credit record and limit access to cheap mortgage deals. Should he stay at home with us and save even more, or leap into choppy financial waters?' HS, Surrey
Nearly every first-time buyer faces an almighty uphill struggle to get on the housing ladder today.
The credit crunch and property-price slowdown – and price falls in some areas – has cast a severe pall over the UK's housing market, prompting lenders to look even less favourably on first-timers with low incomes and no, or next to no, deposit.
A £70,000 gift to your son would boost his fortunes, says Katie Tucker at broker John Charcol. Don't look for costly 95 per cent loan-to-value (LTV) mortgages, though, since a deposit that size will open doors because of greater affordability.
"If the £70,000 makes up a deposit of at least 25 per cent, your son will be able to take on a more affordable mortgage at rates 0.4 per cent lower [than those for most first-timers]," says Tucker. He would qualify for table-topping rates of as little as 4.99 per cent for a two-year fixed with HSBC or 5.19 per cent with Cheshire Building Society, according to the Moneyfacts website.
Unless your son owes thousands of pounds on defaulted credit-card or personal-loan repayments, a previous patchy credit record as a student shouldn't be a problem if he's now earning a decent wage.
But while your money will help him on to the ladder, it won't do anything to calm his fears of a shaky market.
"Looking at it from a purely financial point of view, there'll likely be flat prices or a fall this year, which means that, technically, he could lose money in the housing market," warns Rob Clifford at broker Mortgageforce. "But this is not about turning a fast profit and moving on; it's about finding a place for your son to live."
He may even be able to take out a repayment mortgage (paying back both interest and capital) instead of an interest-only like so many first-timer buyers.
The size of the gift means, though, that it would be included in your estate (and could attract inheritance tax at 40 per cent, if you were to die within seven years of giving it to him).
But that might not be a problem. "If you've come into the money yourself within the last two years, you can rewrite the will via a deed of variation, which would mean your son directly inherits the £70,000, leaving no potential tax to pay," points out John Whiting, tax specialist at PricewaterhouseCoopers.
Send us your questions and you could receive £50 to spend at Amazon
Foxed by jargon? Worried by the credit crunch? E-mail a question to firstname.lastname@example.org. We will not reveal your identity, and we cannot give specific advice. If your question is printed, you'll receive a £50 voucher from Amazon.co.uk, so you can kit out your home with anything from a lawnmower to an espresso machine. www.amazon.co.uk/homeandgarden
Send us your questions and you could receive £50 to spend at Amazon
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 I was a Woman Against Feminism too
- 2 Fifty Shades of Grey movie trailer released: First look at Jamie Dornan as Christian Grey
- 3 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 4 Students offered grants if they tweet pro-Israeli propaganda
- 5 The Tory donor whose firm is one of Britain’s biggest tax avoiders - with HMRC's blessing
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
iJobs Money & Business
£18000 - £20000 per annum + OTE £25K: SThree: SThree Group has been well estab...
competitive: Progressive Recruitment: This really is a fantastic chance to joi...
£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...
£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...
Day In a Page
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
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar