Getting onto the property ladder is hard, especially in today’s economy and as a parent, you want nothing more than to ensure a bright future for your offspring. Not everybody can afford to give their children large amounts of money to help them buy their first home, but there are a lot of things they can do to send you in the right direction towards making that exciting purchase and putting pen to paper.
Help them out with the deposit
If you’re fortunate enough to have parents who have the financial means to support you in buying your first home, then there’s absolutely nothing saying that you shouldn’t take advantage of this. Getting on the property ladder is challenging and saving up enough money by yourself for that fateful deposit could take years. On the other hand, if you’re less inclined to take the money as a gift, you can always insist on repaying the loan to your parents, with or without accrued interest.
If your parents are willing to release equity on the house that they own themselves, this is also a viable option for raising a specific lump sum. With equity release, money is taken from the value of the house and repaid after your parents’ death or else if they decide to go into long-term care. Because the money is paid back to the company issuing the equity release, with interest, after your parents have passed, any inheritance that you might receive will be significantly reduced.
If your parents lend you a significant amount of money for your house deposit, then you may need to ask them to provide a letter stating that they gave you the money and they are treating it as a gift. This should be provided to your mortgage provider.
Take out a specific type of mortgage
If you’re struggling to get together the deposit, then applying for a specific mortgage might help you out. A guarantor mortgage, for example, does not usually require a deposit. Your parents offer their own home, or their savings, as a security measure for such a mortgage, and if you were to fall behind on payments, they would find themselves liable to them.
With a guarantor mortgage, the deeds are in your name, and your parents would have no right to the house- they do not own a share of it.
Another option is a joint mortgage – where the house is bought under both of your names. If this is the option that you take, then your parents will be named on the property deeds alongside you, and you will be jointly responsible for making the mortgage repayments.
An advantage of this type of mortgage is that you would be able to borrow more than if you were taking out a mortgage by yourself. This means that if you’re in a position where the house you want to buy is outside of what you would be accepted for as a single application, you’re much more likely to be approved through a joint mortgage.
A third mortgage type outside of the norm is one known as an offset mortgage. This is where your parents, through means of a lump sum or through monthly payments, contribute towards your mortgage. This ultimately makes it cheaper for you. However, your parents have the right to withdraw the money they contribute at any time, meaning that your monthly repayments could fluctuate at any given time depending on their financial circumstances.
Some banks, such as Lloyds and Barclays, offer schemes related to offset mortgages that involve parents’ savings being held in a special savings account – all the while accruing interest. At this point, you will only need to find a 5% deposit to take out your mortgage.
Other things you can do:
Move back into your parents’ home
While it’s not the ideal situation, especially if you’re used to living independently, a good option for ensuring that you can save the maximum amount of money each month is by moving back home to live with your parents. This spares you the extortionate monthly rental costs and utility bills that are attached to living alone. Contributing a set amount each month towards your parents’ bills will be much less expensive than renting your own place.
Mortgages such as these are much more complicated than the standard mortgage so speaking to a qualified mortgage broker is recommended to make sure you understand the risks associated with taking out an untraditional mortgage type.