Buying your first home was likely a major milestone in your life. Though, in recent years, it has become progressively more difficult for younger people to purchase their first home and get on the property ladder.
In fact, the Office for National Statistics reports that average house prices in the UK increased by 10.3% in the year leading to November 2022.
Higher prices can make it difficult for younger people to save enough money to cover a deposit, with This is Money reporting that the average first-time buyer deposit is now £62,500.
However, there are several ways you can help your child buy their first property. Here are four different ways the Bank of Mum and Dad could help your children get onto the property ladder without damaging your own long-term financial wellbeing.
1. With a financial gift or a loan
Providing direct financial assistance in the form of a gift or a loan is perhaps the simplest way to help your children onto the property ladder.
This can give them the boost they need to put down money for a deposit and is especially useful if you live in an area where high costs make it difficult to save enough.
In fact, the Independent reports that it takes the average person eight years to save for the deposit for a first home. So, you could help your children reach their savings goals quicker, or even put down a larger deposit for a property by gifting them money.
This can be beneficial as, typically, the larger the deposit, the more favourable the terms of their mortgage will likely be. This could result in the lender offering them a much lower interest rate.
If you’re considering helping out, you should ideally sit down with your child and discuss the appropriate amount of money you can realistically afford to give them. This way, you can ensure that you don’t damage your own long-term financial prospects. For example, Mortgage Strategy reports that 70% of parents who gifted more than £5,000 to their children hadn’t factored in their own potential care costs in the future.
Additionally, it may be wise to get any repayment terms and conditions in writing if you decide to lend the money rather than gift it. This can reduce the chance of any disagreements and misunderstandings further down the line.
2. Take out a joint mortgage
As the name suggests, a joint mortgage is a housing loan that is taken out by up to four people.
This is another fantastic way to help your children onto the property ladder. Under a joint mortgage, a lender will use multiple incomes (typically two – your child’s income and your own) to determine what they will lend, making it more likely to pass affordability checks.
As such, a joint mortgage could help your children access a wider range of mortgage deals, or even secure a larger loan.
You should keep in mind that your name will be on the joint mortgage. So, if you already own a home, you could be liable to pay additional Stamp Duty Land Tax (SDLT) as this will be considered a second home.
One solution to this is to use a “joint borrower, sole proprietor” agreement. With the aforementioned structure, only your child’s name will be on the mortgage, while the lender will still take the highest two incomes into account.
This allows you to avoid any SDLT liability while still helping your children pass any affordability checks they may face.
3. Act as a guarantor on your child’s mortgage
You could also act as guarantor on your child’s mortgage. This means you promise to make any payments on their behalf if they’re unable to.
However, you should remember that you will normally be liable to make repayments if your children can’t keep up with them. You may be required to put some of your savings, or even your home, forward as security in order to act as a guarantor – meaning your home could be at risk.
4. Get a “family mortgage”
Finally, another way to help your children onto the property ladder is with a “family mortgage”. This is an agreement where you make a financial deposit into a three- or five-year fixed-rate savings account. This savings account replaces a traditional deposit. For example, you may pay 20% of the purchase price as cash into this savings account.
Your child will be the sole proprietor, even if you provide funds to the savings account personally.
Then, when the saving period expires, you can take the deposit back plus any interest so long as your child has kept up with their repayments.
This could be a preferable option for you if you aren’t in a good financial position to provide your child with a deposit as a gift, but still want to help them get onto the property ladder.
Get in touch
At London Money, we can help you figure out ways you can save enough money to help your children onto the property ladder.
To discuss this more, please email enquire@london-money.co.uk or call (0207) 808 4120.
Please note
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.