How the Bank of Son and Daughter could help your older clients
Tom Gurrie is head of intermediary sales at Vernon Building Society
Family support can work both ways with ‘joint borrower, single owner’ lending.
The Bank of Mum and Dad is a well-worn phrase across the media – for good reason. Parental support is key to helping many first-time buyers onto the housing ladder.
It’s often in the form of a gifted deposit, loan, or as standing guarantor on a mortgage, but there has also been a rise in the number of ‘joint borrower, single owner’ deals.
This type of lending is increasingly used to enable parents to help children onto the ladder by boosting their borrowing power, without incurring the second home stamp duty surcharge.
The scrapping of stamp duty for first-time buyers in November further boosted the popularity of ‘joint borrower, single owner’ lending, as children can now get larger mortgages and homes without paying stamp duty themselves, with their affordability supported by their parents.
So far so good, but there’s only a few lenders that offer this, Vernon included, and many have upper age limits of around 70.
The first-time buyers and their father
We’re a bit more flexible and recently agreed a case for a couple of first-time buyers in London where the father of one borrower supported the mortgage. We were happy to lend until the parent is 85, as he has an extensive property portfolio and pension that provides ongoing income.
The couple could only afford £210,000 on their own income, but with the husband’s father this rose to the £384,000 they needed to purchase their first property.
We structured the mortgage in two parts – £210,000 over 35 years for the children, plus a second part – £174,000 over 22 years to the father’s 85th birthday. All on repayment, and all on one mainstream product.
But here’s the twist. This increasingly popular option also works in reverse, so a son or daughter can help their parent with their mortgage, without actually buying together.
The Bank of Son and Daughter twist
Here’s a recent case that came into us:
A lady in her late 50s had recently split with her husband, who wanted £50,000 equity out of the house as a financial settlement. She couldn’t afford to buy him out on her income alone. But rather than sell the home, her adult son was happy to be a joint borrower alongside her, without being added to the deeds.
He has his own job, family and mortgage but a good income and the affordability worked out. Adding him to the mortgage allowed the mother to raise the money to pay off her ex-husband. The son won’t incur the second home stamp duty surcharge as he doesn’t own any of his mum’s home.
Whilst in this instance the mother needed the money for a divorce settlement, the same principle could be used for older couples who want to release equity for other reasons. They too could get a boost to their affordability from their children.
Obviously, the numbers need to be scrutinised and all parties aware of the possible implications of a change in financial circumstances, tax rules, and ill health or death.
But as with many aspects of mortgage lending, with flexible thinking you discover new approaches and uses for products that can help clients to buy property or, in this case, keep hold of their home.