5 Ways To Help Your Children Get A Home
With the property market booming in the UK more and more first time buyers are turning to their parents for assistance on helping them onto the property ladder. There are now several ways you can help your children or grandchildren onto the property ladder – here we look at the 5 top ways you can make your child’s property dream a reality.
Add your name to the mortgage application (short of income but deposit available)
This is now the most popular way of helping increase a child’s mortgage potential being the joint borrower, sole proprietor route. First-time buyers can add their parents name to the mortgage application while keeping their names off the deeds. This allows the buyer to apply for a mortgage using their parents’ income. The drawback is that lenders will restrict the mortgage term to the parent retirement age normally set at an upper limit of 70.
This type of mortgage deal helps with the affordability of the mortgage but not the deposit. However, it does ensure that the buyer qualifies for first-time buyer stamp duty exemptions, while the parents avoid the additional 4 per cent stamp duty surcharge for a second home in Scotland. As they don’t share ownership of the first-time buyer’s home, parents can also avoid paying capital gains tax on any increase in value when the property is sold.
100% Family Mortgage range (short of deposit but have income)
There are several 100% mortgage deals that are tied to a parent’s savings account or the equity in their home. This allows first time buyers to purchase a property without a deposit, but on the condition that a family member deposits money into an associated savings account for a fixed period of time or they are willing to provide a guarantee secured against their own residential property.
This means that parents or grandparents who aren’t in a position to give money can still share the benefits of their wealth. However, for the buyer it means that they have to stay in the property until its value increases enough to give them a substantial deposit in order to move up the housing ladder and if house prices fall, they could be in negative equity. Remember, there is a risk that you could lose your home if your child’s house is repossessed and there is not enough money to repay the loan.
Student Guarantor Mortgages (no income but deposit available)
Most students don’t realise that mortgages are available to them while studying at University even if they have no income. This could potentially save thousands of pounds over the term at university compared to paying high rental fees. First-time buyers basically have their parents guarantee the mortgage payments however the catch is there are strict criteria to be fulfilled and the parents are vetted to make sure they can take over repayments if the buyer is unable to meet them. Standard criteria do you need to fit?
- Anyone who is over 18 and under 50 may be eligible.
- You will need to have sufficient income and if not a guarantor will be required.
- The guarantor must be a direct family member who already owns a house.
- They must live in the UK and have permanent right to reside here.
- All lender will take the term to the guarantors 70th birthday. In some circumstances it may be possible to use lenders that elongate this term to age 80.
- You will be required to place at least a 10% deposit down if you wish a capital repayment mortgage. Interest only options are currently available but only to cover your period during studies and a larger deposit of at least 25% is required.
Remortgage your own home
Another option for parents who want to help their children is to release equity in their existing property my remortgaging. This gives the parent the ability to secure a new competitive mortgage rate and can then gift the funds raised. This could suit parents who have money in property but don’t plan to move home, however the risk is that you are increasing the costs of your main mortgage.
You could give your child the lump sum raised to use as a deposit as a simple non-returnable, tax free gift. Gifted money could be subject to inheritance tax – you must live longer than seven years from the date you gift anything over your £3,000 annual allowance to avoid this.
Remember if your child is buying a home with a partner it’s important to draw up a legal document such as a Declaration of Trust. This protects the buyer the gift was given to, and the share of the property to which they are entitled should they part ways.
It’s worth noting that if you lend the money to your child, rather than gift it, not many lenders accept a parental loan as a deposit and will take the monthly repayments into account and further restrict the amount your child can borrow
Equity release And Retirement Interest Only Mortgages (55+ retirement options)
Those with plenty of property wealth now have two options depending on your income. Retirement Interest Only (or Rio mortgages) were introduced in 2018 after a change in rules from the Financial Conduct Authority. These mortgages allow anyone over 55+ to remortgage onto an interest only mortgage until death if you have sufficient income to cover the monthly costs. This allows you to release funds at a low monthly costs. This remains a specialist market with limited availability and it is essential to speak with us to ensure that you fit the current criteria.
For those that have plenty of wealth in their home but with a low income they could unlock the equity in their home using Equity Release. This option is available to borrowers aged over 55 and is dependent on age and health rather than your income.
Both the above options can also reduce your inheritance tax liability, as the value of the equity released will be deducted from the overall estate when the inheritance tax bill is calculated.
Being independent we have access to the whole of market to ensure we get the best product to assist your child onto the property ladder.
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