There are many different ways to go about helping your child get onto the property ladder, and each option requires careful consideration.
Gifting a deposit
Perhaps the simplest way to help your child obtain a mortgage is by providing them with a deposit.
If you have the savings, then a gifted deposit will help the child to put more money down up front, reducing the risk to the lender and, in all likelihood, reducing their monthly payments.
Lenders do normally require proof that the money is a gift, though, meaning a declaration should be signed as proof that you do not want the money to be repaid.
You could just lend the money to your child to actually purchase the property, but this is seen as a loan in the eyes of a lender, and may go against the child’s application.
A guarantor mortgage is another relatively simple way to helping your children to get a property.
You will be required to sign as a guarantor, meaning if your child defaults on their repayments, you will be liable to make the payments.
If things get worse, your property can be used as collateral, so you must ensure your child has the means to repay the mortgage.
If your child would like a more expensive property, then a joint mortgage may be the route to go down.
Joint mortgages for parent and child take into account the earnings of you, the parent, when working out the affordability of a client.
This option is best used when you no longer have a mortgage on your property, as another property may be considered a second home, meaning you may be liable to pay capital gains tax (CGT) on the property if sold. There may also be extra stamp duty costs when buying a second home.
An offset mortgage allows you to use the value of your savings against your child’s mortgage.
A lender will usually require you to put a certain amount in a savings account with them that’s tied to the mortgage. This then reduces the amount of interest on the mortgage as the savings are used to offset it.
You will normally get your money back after a certain percentage of the mortgage has been paid off.
Of course, with all these options, there are risks. Talk to an expert adviser to see which option is best for you and your circumstances.
For advice on getting a mortgage for your children, speak to one of our expert advisers who will be able to help you with the next steps.