If you have adult children who are making their own way in the world, you could have plans to help them with one key milestone: buying their first home.
House prices are rising all around the UK, meaning some people will find getting onto the property ladder more challenging than in previous years. The Office for National Statistics (ONS) reports that, between February 2021 and February 2022, Scottish house prices rose by more than 10%.
The pandemic has also played a part in the plight of the first-time buyer. An FTAdviser report claims that the average age of a first-time buyer in the UK was 34 in 2021, up two years from before the pandemic.
As a result of the challenges first-time buyers may face in the modern world, more and more parents have decided to provide their kids with financial assistance when they buy their first home.
Research from Savills states that in 2021, the Bank of Mum and Dad helped with 49% of first-time home purchases in the UK. These handouts totalled around £10 billion.
While providing a cash gift to first-time buyers can be a great option, there are other ways to help your adult children onto the property ladder without gifting money directly.
Read on to find out five alternative ways to help your adult children onto the property ladder.
1. Allow adult children to live at home rent-free
One of the main challenges first-time buyers encounter when saving to buy a home is accumulating a large enough deposit. If they are renting a property while saving up, they could find it difficult to save enough money for a substantial down payment on a house.
To allow your kids to save a larger deposit from their own salary, thereby giving them the chance to secure the mortgage they want, you could allow them to live at home rent-free while they work towards this goal.
They could then save the amount they would pay in rental fees into a Lifetime ISA (LISA) or Stocks and Shares ISA, for example, and more easily meet the required deposit amount for their dream first home.
2. Take out a joint mortgage with your child
If you are reluctant to offer a lump sum to help your child onto the property ladder, but are willing to provide some financial assistance, a joint mortgage could be a great option. Especially if your child is buying their first home alone, not with a partner, your input on a joint mortgage could be gratefully received.
A joint mortgage considers both of your incomes when determining what you can borrow, and splits the responsibility of mortgage repayments between both homeowners. It means that, if your child cannot make their repayments, you are liable to make up the difference.
This could be an advantageous option if you want to help your child financially, but aren’t prepared to offer a lump sum of cash upfront.
3. Get a “family mortgage”
A “family mortgage” is a mortgage that allows borrowers with as little as a 5% deposit to buy a home, with an added level of security provided by you, the “helper”.
As the helper in a family mortgage, here is how your financial aid could be used.
- You transfer a lump sum, usually around 5% to 10% of the property price, into a savings account with the lender.
- This sum remains in the account for a fixed term, usually three to five years, after which it is returned to you with interest.
- If the homeowner fails to keep up repayments, your funds may be used to repay the debt.
- If mortgage repayments are kept up for three or five years, your money is returned in full.
A family mortgage could be a beneficial choice for you, if you wish to offer an extra level of financial security to your child, without simply gifting cash.
Of course, there is the chance your money could not be returned to you if your child does not repay their mortgage on time.
However, if you trust that your child can make their payments over a fixed period, and you can afford to be without this lump sum for a number of years, this could be a great way of providing them with the boost they need.
4. Act as a guarantor on their mortgage
Another way of offering a helping hand to children buying their first home is to act as a guarantor. You may have gone through a similar process when your children have rented properties while studying, for example.
Being a guarantor on a mortgage means you are liable to make any repayments that the homeowner, your child, fails to pay. By signing on as a guarantor, you promise to be the “backup” if your child can’t pay their mortgage.
Once again, being a guarantor can allow you to help your child onto the property ladder, while not actually parting with any money. However, as with all agreements like this, there is a risk that you could be liable to repay the entire debt, if your child cannot pay.
5. Loan cash rather than gifting it
If none of these options seem right for you, you could decide to offer cash that makes up part of your child’s deposit, or provides funds for renovations if they decide to buy a less expensive “fixer-upper”, for example.
However, you may not be in position to give this money as a gift. So, you could discuss the option of giving this cash as a loan, that will be repaid over a fixed term that works for both parties.
That way, you can still give your child the financial assistance they need, while safe in the knowledge you will recoup your funds in the future.
Get in touch
Loaning or gifting large sums of money, or acting as a participant in your loved one’s mortgage, is a big decision. When you go down this route, it can be highly constructive to seek the guidance of a seasoned professional.
Working with a mortgage expert can help soothe any concerns you may have, and could enable you to decide which of these options, if any, is the right course of action for you and your family.
If you are planning to help a loved one onto the property ladder this year, get in touch with us today. Email [email protected] or call 0131 339 2281 to speak to us.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.