Which?: Look beyond Help to Buy
Already a third of the consumer group’s members are helping their children onto the property ladder. And while Help to Buy has grabbed the headlines, Which? research found that specialist mortgages aimed at parents helping their children to buy their first home such as guarantor mortgages and family deposit mortgages are alternatives worth considering.
Barney McCarthy from Which? Mortgage Advisers said: “Help to Buy has had so much coverage over the past few months that first-time buyers – and parents looking to help them – could be forgiven for overlooking the other options available.
“For example, Yorkshire Building Society recently launched competitive 95% loan-to-value mortgages and other products from other lenders such as guarantor mortgages and family deposit home loans may prove just as useful.
“It can be confusing to establish what type of mortgage works for what circumstances, which is why we would recommend that first-time buyers and family members looking to assist them speak to an independent adviser.
“Despite the headlines pointing to improved first-time buyer activity, it’s still tough out there for potential homeowners and some of the comments we received from Which? members reflect this. One of the most frequently voiced opinions was that financial assistance is more beneficial now than left in a will, which shows that attitudes towards gifting money to children may be shifting from a dying inheritance to a living one.”
More than 1,200 Which? members were polled and a quarter had helped their children onto the property ladder, while 7% intend to in the near future.
Of those that assisted their offspring, two-thirds of those had given their children money to use as a deposit, while one in five lent them the money. Another one in ten stood as guarantor for the mortgage and 4% took out a joint mortgage.
Gifting or lending the deposit amount may be the most straightforward option available to those wanting to help their offspring on to the property ladder, but not all parents have the cash to spare.
There are various types of guarantor mortgages but some allow parents to put their own property up as security, allowing lenders to advance 95% loans where they would otherwise require a larger deposit.
Which?’s research identified home loans from National Counties Building Society, Bath Building Society and Aldermore as potential solutions.
Family deposit mortgages allow parents to offset their savings against their children’s deposit. This parental contribution is held as security in a deposit account with the lender, but still gathers interest and is returned if their children’s mortgage triggers certain events. Lloyds TSB’s Lend a Hand mortgage is perhaps the most well-known of these but Market Harborough Building Society’s Family Deposit product and Woolwich/Barclays’ Springboard home loan are also worth bearing in mind.
Although the research testifies to the sense of satisfaction Which? members gained from helping their children – three-quarters of those who did said they would recommend others doing the same – there are pros and cons of all the different options which is why it is worth talking them through with an independent adviser.