Adrian Anderson, director of Anderson Harris, takes a look at the options for borrowers looking to buy with the help of Bank of Mum and Dad.
Property prices continue to rise in much of the country, and with salaries failing to keep pace, it is tricky for first-time buyers to get the deposit they need to get on the housing ladder.
The Bank of Mum and Dad is increasingly being called upon to help, with lenders becoming more creative when it comes to parents assisting their children.
Most of the first-time buyer mortgages we arrange have been for those with large gifted cash deposits from their parents.
The advantage of a big deposit is that you can also access much cheaper mortgage rates. In the past, if the child’s income was not enough to obtain a big-enough mortgage, thenparents wouldalso act as guarantors but lenders are no longer keen on such deals.
One option is for parents to be party to the mortgage and property deeds.However, the downside is that the parents will also usually havetheir own main residence so may be subject tocapital gains tax on the sale of the property in the future.
The extra 3% stamp duty on second homes from April may also be charged as the child’s property could be classed as a secondhome for theparents, even though it isunlikely that the parents will actually occupy the property.
A better option may be Barclays' Family Affordability Plan, which is a joint borrower/sole proprietor mortgage.
Parents are not party to the property deeds but are liable for the mortgage, along with the child.
This gets around any extra stamp duty or CGT and as long as the child can prove to Barclays that they can afford the mortgage intheir own right at a later date, the parents can be released from their obligations.
Another option, also from Barclays, is the Family Springboard mortgage. The borrower takes out the mortgage,while family members open a Helpful Start accountinto which they put 10 per cent of the property price.
The borrower needs only a 5% deposit and gets a 95% loan-to-value mortgage for the rest but at a lower rate than they would otherwise have done.
After three years, the Helpful Start account is closed and the family membersget their money back, plus interest.
If parents have equity in their home they can still use this to assisttheir child without remortgaging to do so.
The National Counties building society's Family Mortgage will take wider family assets intoaccount as security so that a child with only a 5% deposit, for example, can benefitfrom a better mortgage rate than they would otherwise have done.
For example, they buyer may be able to get a 3-year fix at 3.34% or 5-year fix at 3.64% - lower rates than would normally be the case for someone requiring 95% LTV - if the lender takes a charge on a portion of the parent’s home.
