Mortgage Clinic: How big a deposit does a first-timer need?


'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 mortgageclinic@independent.co.uk. 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

Finacial products from our partners
Property search
  • Get to the point
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

    Recruitment Genius: Financial Adviser

    £20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

    SThree: Graduate Recruitment Resourcer

    £20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

    Guru Careers: Application Support Analyst / 1st Line Support

    £25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

    Guru Careers: .NET Developer / Web Developer

    £45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

    Day In a Page

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence