When considering how to help your relatives unlock their home-ownership potential, a gifted deposit from the Bank of Mum and Dad (or Granny and Grandad!) is probably the first route that springs to mind.
It’s no surprise either - recent research from Tembo has shown that almost 50% of first-time buyers purchasing property with the assistance of their parents would not be able to do so otherwise.
It’s not an easy time to be looking for a first home. House prices are still on the rise (albeit at a slower rate than the beginning of the year), and the ongoing uncertainty is continuing to push interest rates up. When you add the approaching end of the government’s Help to Buy scheme and the recently announced changes to Stamp Duty into the mix, it’s clear that the competition in the first-time buyer market is set to continue for some time yet.
Considering the trials people are facing in the attempt to own their own homes, our Mortgage Advisers often get asked by parents what they can do, aside from gifting cash, to help their loved ones.
One option is a joint borrower sole proprietor mortgage, which enables parents to help their child by assisting with their mortgage. Their income is used to improve borrowing power without being named on the title deeds and can be a useful steppingstone to full financial independence. It also means the parent won’t be eligible to pay the additional 3% Stamp Duty surcharge on a second property. A different long-term plan could be to remortgage or to downsize from your home which may release equity to fund a deposit for your child's purchase.
Although the government’s Help to Buy equity loan scheme has come to an end this year, there are several other affordable housing schemes available which could help your loved ones to fulfil their property ambitions, including Shared Ownership and the new initiative – the First Homes Scheme.
Needless to say, the Bank of Mum and Dad isn’t set to close its doors anytime soon, but parents can rest assured there is more than one way to unlock a loved one's borrowing potential.