Many first-time buyers have parents who have offered to help them onto the property ladder. But what are the options available to them? There are new ways for parents to help their children rather than just handing over large sums of money as a gift to cover the deposit. These options are:
The Savings Route
Some lenders are offering first-time buyers a loan with deposits of as little as 5% of their purchase price. The benefit is that a lower interest rate is offered on the basis that your parents put 10% of the price in a linked savings account for three years. If the monthly mortgage payments are made on time during this period, your parents can withdraw the cash at the end of the three year deal having earned interest.
If you didn’t keep up the repayments, the lender can keep the savings account in place for over three years. They can also retain the money as compensation. This is beneficial to the lender if the property is repossessed and sold at a loss.
The Offset Strategy
You can cut your monthly repayments by your parents putting money into three offset bank accounts. This money doesn’t earn any interest but is deducted from your mortgage repayment each month. Your parents can withdraw the money at any time, but your repayments will increase.
The Guarantor Scheme
Your parents could act as guarantors using equity in their own homes and their incomes to guarantee that you will meet the repayments. The idea is that if an established owner guarantees the loan for the borrower they are more likely to be accepted. The Borrower may also qualify for a lower interest rate.
Whichever route you choose, we recommend seeking advice from an independent financial advisor. As well as a solicitor in relation to the conveyancing process and tax specialist in relation to any tax issues.
It is important to remember that mortgage lenders require precise confirmation as to how you are affording the deposit, and whether it is a gift or loan. Different lenders have different lending criteria. A financial advisor will be best placed to advise you on the route to take.
If you’d like more information, please visit our residential conveyancing solicitors page.
For more information on helping first-time buyers onto the property ladder, please contact our Residential Property team on 0161 475 7676.