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Options for parents who want to help their children buy a home
Today, house prices are far higher in real terms than they were for previous generations. At the same time, creditors are less flexible with the amounts they are willing to lend. As a result, first time buyers often have difficulty getting a mortgage and moving into their own place. For parents who wish to help their children take this step, there are a number of options.
For parents who have their own mortgage, remortgaging is one option. That means increasing your loan and thereby either increasing the term or increasing your repayments. This additional borrowing could have an impact on your standard of living or retirement plans, so take these things into account.
Guarantor mortgages are another option. With a guarantor mortgage, a mortgage provider will look at parents' income and assets and will normally offer a bigger amount than a child would be able to get on their own. If the child fails to make repayments, the parents are responsible for doing so. For parents who still have their own mortgage, this could be a risky choice.
If you are still working, you could consider a joint mortgage that takes both your income and your child's earnings into account (as well as any money still owed on your own mortgage). With a joint mortgage, your name(s) and the child's name both go on the mortgage agreement and the deeds. If your child stopped paying their share, you would be liable.
Another option is a family offset mortgage, where your savings are balanced against your child's debt. That means that amount they have to pay back (and pay interest on) is reduced. For example, if you have 20,000 in savings and your child has a 100,000 mortgage, they'll only pay interest on 80,000. If you choose this option, your savings won't earn you any interest, but you also won't have to pay tax on the interest. For higher-rate taxpayers, this might be an attractive option.
For parents who have their own mortgage, remortgaging is one option. That means increasing your loan and thereby either increasing the term or increasing your repayments. This additional borrowing could have an impact on your standard of living or retirement plans, so take these things into account.
Guarantor mortgages are another option. With a guarantor mortgage, a mortgage provider will look at parents' income and assets and will normally offer a bigger amount than a child would be able to get on their own. If the child fails to make repayments, the parents are responsible for doing so. For parents who still have their own mortgage, this could be a risky choice.
If you are still working, you could consider a joint mortgage that takes both your income and your child's earnings into account (as well as any money still owed on your own mortgage). With a joint mortgage, your name(s) and the child's name both go on the mortgage agreement and the deeds. If your child stopped paying their share, you would be liable.
Another option is a family offset mortgage, where your savings are balanced against your child's debt. That means that amount they have to pay back (and pay interest on) is reduced. For example, if you have 20,000 in savings and your child has a 100,000 mortgage, they'll only pay interest on 80,000. If you choose this option, your savings won't earn you any interest, but you also won't have to pay tax on the interest. For higher-rate taxpayers, this might be an attractive option.