You simply want the best for your children as a parent. Irrespective of how old your kids may be, you inherently feel responsible for their welfare.
Helping your children get on the property ladder can bring a sense of security and satisfaction. It is by far one of the best ways of investing in their long-term financial security.
But in an era of unprecedented house prices and high deposit requirements, homeownership is a pipe dream for many. Even where prospective buyers could comfortably afford the repayments, qualifying for a mortgage is an entirely different matter.
For parents who are determined to help their kids avoid becoming part of ‘generation rent’, there are options available. All of which should be discussed with an experienced broker before deciding which kind of financial support to provide.
A Guarantor Mortgage
One of the options available is a guarantor mortgage. This is where your own financial situation forms the basis of the bank’s eligibility checks, not that of the primary applicant.
In order to qualify for a guarantor mortgage, you will need to own your own home and have repaid enough of your mortgage to cover the costs of the loan. Alternatively, you will need to provide evidence of having sufficient on-hand savings as a form of security for the mortgage.
With a guarantor mortgage, the primary applicant is responsible for making the monthly payments in the normal way. However, in the event that the primary applicant defaults on the mortgage, the guarantor becomes responsible for its repayment.
This also means that the assets used to secure the mortgage (usually your home) are at risk of repossession, in the event of non-repayment. It is therefore essential to ensure you understand the potential risks of guaranteeing a mortgage on behalf of someone else, before agreeing to do so.
On a more positive note, a guarantor mortgage can pave the way for preferential interest rates and lower overall borrowing costs. If the guarantor is in a strong financial position and an adequate deposit is paid, interest rates may be lower than the primary application would otherwise be offered.
Though again, the importance of consulting with an experienced broker to ensure you get the best possible deal cannot be overstated.
Deposit Contributions
For most first-time buyers, covering the monthly repayments on a mortgage is not the issue. In fact, research suggests that millions are spending more on private rents than an equivalent mortgage would cost.
Instead, it is the elevated deposits demanded by most banks and lenders that pose the biggest challenge.
Up more than 10% since the same time last year, average UK house prices are currently hovering around £260,000. For a 20% deposit requirement, this would mean saving at least £52,000 before being able to qualify for a mortgage.
For the vast majority of would-be homebuyers, this is simply out of the question.
It is also why the ‘bank of mum and dad’ has become a popular source of deposit contributions for UK homebuyers. Simply by helping your child meet their deposit requirements, they could find their way onto the property ladder.
All without having to put your home or any other assets at risk in the process.
Equity Release
Another increasingly popular option for homeowners looking to support their families financially is equity release. This is where a proportion of a property’s value is converted into cash by the owner, to be repaid at a later date.
Typically, at the time the property is sold, following the death of its owners.
Sky-high property prices have resulted in millions becoming more asset-rich than they could have predicted just 10 years ago. Since being purchased in the 80s or 90s, many homes have doubled, tripled or even quadrupled in value.
The appeal of equity release is therefore understandable, enabling owners of valuable homes to release large sums of money for any purpose. A popular example of this is helping family members get on the property ladder, either through deposit contributions or by paying off a chunk of the property’s value in one lump-sum payment.
Understanding the Benefits and Risks
These are just a few of the options available for helping family members qualify for a mortgage. In all instances, the appropriateness of any given option will be determined by your own financial circumstances.
It is therefore essential to consult with an independent broker at an early stage, during which you will be familiarised with the options available. Any decision you make should take your own long-term financial security into account as a priority.
For more information on any of the above or to discuss the alternative options such as a bridging loan for helping family members get on the property ladder, contact a member of the team at UK Property Finance today.
Author’s bio:
Craig Upton supports UK businesses by increasing sales growth using various revenue streams online. Creating strategic partnerships and keen focus to detail, Craig equips websites with the right tools to increase traffic. Craig is also the CEO of iCONQUER, a UK based seo company and has been working in the digital marketing arena for over a decade. A trusted SEO consultant and trainer, Craig has worked with British brands such as FT.com, DJKit, UK Property Finance, Serimax and also supported UK doctors, solicitors, builders, jewellers, to mention a few, gain more exposure online. Craig has gained a wealth of knowledge within the digital marketing space and is committed to creating new opportunities working with UK companies.
