There has been huge publicity recently regarding the age our offspring are managing to buy their first homes and/or returning to the nest later in life.
Options in which parents can help their children are plentiful, but not all will work for everyone, some of the main routes are:
Guarantor mortgage this is where the property and the mortgage are in the name of the son or daughter, but affordability is based on the income of the parents. A key advantage of this is that the property will be the owner’s only residence which can lead to tax benefits including the payment of standard stamp duty. A possible downside is that the guarantor has no legal right over the property, but does have an obligation to pay the mortgage should the borrower (son or daughter) not pay!
Joint mortgage this option would mean that both the property and mortgage are a joint responsibility between child and parent and gives some element of control, however extra stamp duty could apply on the purchase (there may also be other tax implications to consider). Affordability, the amount that can be borrowed, can be based on up to 3 incomes.
Joint mortgage/sole ownership this route is a blend of the first two options, with very few lenders allowing the property to be owned in names other than those named on the mortgage. However, this can be a useful option in some circumstances.
Gifted deposit often referred to as the “Bank of Mum and Dad” for once no jargon, the deposit is provided as a gift, with both the property and the mortgage being in the name of son / daughter, whose income must meet the lenders affordability requirements on a standalone basis. Some lenders will allow the deposit to be protected by a second mortgage in favour of the parents, which can be useful where the owners of the property are unmarried partners.
All of the options can help to smooth the path to either get onto the property ladder or make the transition more affordable.
This is a complex and potentially emotive area where the wrong choice can be both costly and divisive for families. Given the size of the decision, it is always best to take expert whole of market mortgage advice at an early stage and potentially involve both generations!
Local, face to face, independent mortgage advice can smooth the whole process and we would be delighted to help.
Paul Hardingham and Tony Ibson are Mortgage and Protection Advisers at Innovate Mortgages and Loans. Both have over 20 years of experience advising individuals and businesses across the North East of England. They can be contacted for bespoke advice at paul@innovateml.co.uk or tony@innovateml.co.uk or call 0191 223 3514.
