The Bank of Mum and Dad or Grandparents is increasingly being asked to help out when children want to buy their first home. Recent research has shown that first-time buyers now have to save for 13 years on average to afford a deposit. In London, it could 46 years before someone has saved enough for a deposit!
This is why as many as 60% of first-time buyers must ask for help and normally it’s from their parents. So, how can parents find a practical way to help:
Buy a house
For those with enough money, a parent can simply buy a property for their children or child to live in. They could decide to become joint owners of a house or flat alongside their children. This isn’t the ideal solution for those who want to see their children financially independent.
Give the child the money
This is an obvious one but not always most desirable or possible. If the child could meet the stringent mortgage lender’s requirements, the bigger the deposit they have, the more favourable the mortgage rate offered will be.
Unfortunately, not many older people are in the luxurious position of having excess cash to just give away, no matter how much they want to help the younger generation. There are some other ways that people can help without parting with their assets.
Mortgage your own home
If there is considerable equity trapped in a family home, it can be possible to mortgage it and hand over the released cash to the first-time buyers. There is also the option to release equity, a process of borrowing money against what your property is worth that isn’t paid back until after your death.
If you’re considering this, it’s best to get specialist advice. For Equity Release Wiltshire, visit https://chilvester.co.uk/equity-release/
Be a guarantor for the first-time buyer’s loan
Guarantee the first-time buyer’s loan
If you act as a guarantor for a first-time buyer, they might be able to borrow more money than they would otherwise have been offered. The mortgage lender would take into account the parental income, place a charge on your property or deposit the money into a savings account for security.
Whatever method you choose to help your children onto the property ladder, all have different benefits and drawbacks that need to be considered carefully. You need to be realistic about how you could be affected if things don’t go to plan. Always seek the advice of a financial advisor before making big decisions.