House prices are a great deal higher in real terms now than they were for previous generations. Coupled with this is a situation whereby creditors are stricter than ever about income to borrowing ratios. In this climate, first time buyers can find it impossible to get mortgage and move into their own place. Many parents are in a position to help their children get a mortgage – here are some of the options.
For parents who have their own mortgage, remortgaging is one option. That means increasing your loan and thereby either increasing the term or increasing your repayments. This additional borrowing could have an impact on your standard of living or retirement plans, so take these things into account.
Guarantor mortgages are another option. With a guarantor mortgage, a mortgage provider will look at parents’ income and assets and will normally offer a bigger amount than a child would be able to get on their own. If the child fails to make repayments, the parents are responsible for doing so. For parents who still have their own mortgage, this could be a risky choice.
For parents who are still working, a joint mortgage is another possibility. A joint mortgage takes both your earnings and your child’s income into account (and also factors in any money still owed on your own mortgage). This arrangement means there will be joint names on the mortgage agreement and the deeds, and that you would be liable if your child stopped paying their share.
Another option is a family offset mortgage, where your savings are balanced against your child’s debt. That means that amount they have to pay back (and pay interest on) is reduced. For example, if you have 20,000 in savings and your child has a 100,000 mortgage, they’ll only pay interest on 80,000. If you choose this option, your savings won’t earn you any interest, but you also won’t have to pay tax on the interest. For higher-rate taxpayers, this might be an attractive option.
Get in touch with a mortgage adviser Manchester.