Let’s face it, getting onto that first rung of the property ladder can feel like a complete impossibility for lots of people. House prices have risen and so has cost of living whilst wages remain disproportionately low. Even if you are in a position to afford the monthly mortgage payments, you will still need to raise a significant sum upfront to provide the deposit. It’s no wonder, therefore, that so many people are reliant on family members to help them out. So if you are in the fortunate position to have family who might be able to assist, this blog walks you through some of the different ways that they can help.
Let’s start with 5 ways your family might help you get on to the property ladder
Bank of Mum and Dad
Not raided the parents (or grandparents)’ cash reserves lately? Invite them over for a roast and a few sherries and broach the subject of gifting you a deposit. You can all sign a formal written agreement on any ownership rights or repayment plans if this feels more comfortable.
2. Consider an offset mortgage
If Mum & Dad don’t want to say a forever goodbye to their hard-earned savings, a family offset mortgage may work. They put their savings in an account linked to your mortgage. You can’t access the funds (the lenders aren’t daft!) but the balance effectively acts as a deposit and has the bonus of securing you a lower interest rate. The savings are locked in with the lender for around 5 years (or until your mortgage balance is at a low enough % of your property value) but do earn interest in this time. Most of the handful of lenders offering these want you to have a 5% cash deposit too but there is the odd option not requiring any deposit.
3. Try Mum & Dad again!
Perhaps mum and dad are thin on cash/savings but have a mortgage free home? Do they trust you enough to offer it as collateral on your mortgage? Some lenders will take a limited charge on the parents property as long as there is at least 25% equity available – meaning if you don’t pay, their property could be at risk of repossession, although this is always a last resort. So long as you maintain your payments, they pay nothing. Again, this is for a limited period, usually until your mortgage balance is at a low enough % of your property value for the lender to release the charge.
4. Join forces with your parents
Parents still have a good income? You could partner up with one or both of them to get a joint mortgage using all incomes but remember they’ll need to be able to afford their own mortgage and outgoings too. They will still be liable for the monthly payments if you don’t pay and you’ll all be named on the mortgage agreement and the deeds of the property. The catch? Assuming they own a property, your purchase is classed as a second home (cheers government!) and you currently have to pay 3% extra stamp duty (see 5)
5. Consider a Joint borrower, sole proprietor mortgage
A variation of point 4 is a joint borrower, sole proprietor mortgage. Your parents’ income is used but they aren’t named on the new property deeds-meaning you pay stamp duty rates as a first-time buyer – 0% for properties under £300,000. Although these types of mortgages are not offer by many lenders, they are definitely worth considering.