How Parents Can Help with a First Time Buyer Mortgage
Help your child or grandchild get on the property ladder
In the current property market, the bank of Mum and Dad, or
even Granny and Grandad, has helped many people to buy their first home. With
many people struggling to save up a deposit to get a foot on the ladder,
parents and grandparents are raiding their savings more and more often. But what about those families who would like
to help their children buy a first home, but don’t have savings they can afford
to lend?
The good news is that mortgage lenders are increasingly recognising this niche in the market by designing products aimed at parents and grandparents who aren’t able to simply hand over a chunk of cash for the deposit. At Bristol, Bath and Exeter Mortgages Online, we can help you understand what deals are available for your circumstances – and talk you through all the options for helping your family members onto the property ladder.
Guarantor mortgages for first time buyers
Guarantor mortgages are one such option. These allow borrowers to take on larger loans than the lender would normally be prepared to extend if a close family member is prepared to act as a guarantor on the debt.
Typically, parents or grandparents offer their own homes as collateral on the children’s mortgage. They will need to have a decent chunk of equity in the property – 25 per cent is a standard minimum requirement – on which their children’s lender will put a charge. If the children keep up with their repayments, there’s nothing for the parents or grandparents to pay.
Nevertheless, there are pitfalls with guarantor mortgages. Above all, should your children default on their loan, you’ll be liable to make up the shortfall – you might have to remortgage your home to do so and in extreme circumstances, if you can’t pay, it could be subject to repossession.
Parents and family offset mortgages
A family offset mortgage is a different type of option. With these deals, parents or grandparents put their savings into an account linked to the child’s mortgage. The children can’t get at the money, but it effectively serves as a deposit on the property they want to buy. It also lowers interest charges, as the savings balance is deducted from the value of the loan.
The advantage of this type of deal is that parents don’t have to give their money away, though they will have to leave it locked up for an extended period – typically until the child’s mortgage is worth only 75 to 80% of the property value. But it will eventually be available to them in the years ahead once again.
There are variations on the theme available. Several banks and building societies offer mortgages where parents’ savings are held in a special savings account as security but they also earn interest at the same time. Children then need to find a deposit of only 5 per cent.
For more information or to book your free consultation please visit one of our websites or contact us
www.bristolmortgagesonline.com 0117 325 1511
www.bathmortgagesonline.com 01225 584 888
www.exetermortgagesonline.com 01392 690 888
email info@swmortgages.com
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