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How can parents help their children to afford a mortgage? - news article image

How can parents help their children to afford a mortgage?

7 Sep 2017

There is no hiding from the fact that house prices in Oxfordshire are high. A recent study by Lloyds Bank suggested that Oxford is actually the least affordable place to live in the UK with homes costing over 10 times the average salary. Despite this, there are a number of options available to you to help your daughter with her house purchase. 

If you have surplus savings, you may consider gifting or loaning your daughter money to increase her deposit and bridge the gap between the purchase price and the level of mortgage she can afford in her own right. Gifting is often the simplest method and can be effective for Inheritance Tax Planning as it limits the tax paid on it later down the line. If you choose to loan your daughter the money, you should be aware that the repayments will be taken into account and consequently, her borrowing capacity may be less than if the money were gifted.  

Another option for you as a parent would be to take a second charge mortgage over the property yourself. The second charge mortgage allows you to protect the amount you help with, without being an owner of the property. You will find that some lenders are more proactive in this area and have specific mortgage products targeted to your situation. For example, one particular lender holds your deposit money for a number of years in a specific account as additional security. As long as your child keeps up with the repayments, you will receive your deposit back with interest at the end of the period – typically 3 years. 

Alternatively, if you do not have sufficient cash funds, but do have equity in your home, you may choose to borrow the money and gift or loan it to your child. To achieve this, both you and your daughter will need to use the same lender, you will then both receive an interest rate reduction on the current rate. Some lenders have a simpler approach in that they take charge of your property rather than insisting you borrow the money yourself to then gift or loan it to your daughter. 

Similarly, a number of lenders will also give you the option to be a joint borrower with your daughter, whilst allowing her to be the sole property owner. This will mean that you are the not on the property deeds yourself, but will be responsible for the debt. The calculation used for this type of mortgage will be your surplus income available over your own living expenses. Please note that in some circumstances your age will determine the mortgage term. 

As you can see there are a number of option available, each with their own benefits and drawbacks. Here are Shaw Gibbs, we can guide you through the process to find the right mortgage for your circumstances. 

How can parents help their children to afford a mortgage? - news article image

Author:

Ed Batty

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