It makes me feel sad that many youngsters believe they will never own their own home, or they think that if they do, it will be much later in life. You can understand why. Someone, for instance, earning £30k (£24k after tax) will take a long time to save a decent deposit.
Yes, property prices, especially in London and the South East, can be breathtaking but potential first-time buyers need not give up just yet. They need to talk to us first.
One of the suggestions we would usually make is to consider the Government’s Help To Buy scheme. However, if your dream home would not be a new build property, then this is not an option. I explain more about the Help To Buy scheme here
Another suggestion we make is asking whether buyers can raise some of the deposit from family – the Bank of Mum and Dad. This can seem like a big ask, as the assumption is that once that money is given, it will never be returned! This money could be a parent’s retirement savings, or they perhaps they are asset rich but have no free cash. If you are lucky enough to have parents who would like to help but just don’t know if they can afford to, by talking through the options together with us, we can search for a solution suitable to both you and your parents.https://www.helptobuy.gov.uk/
So, can parents keep some control over their gifted savings? There are schemes that allow parents to withdraw their original funding, once the property has increased in value or a certain period of time has elapsed.
Alternatively, a charge can be put over the property which allows the parents to reclaim their funds when the property is sold. This can also be beneficial for those parents that want to help their own child out, but they are buying their first home with a partner. Not to say you don’t like them, but if things don’t work out between them in the future, you need to make sure your savings are protected.
So what are the options for parents who do not have money in the bank to give as a deposit to their child? The parents could possibly raise extra money against their own home. That might be fine if you’re in your 40s, because you’ve probably got 20, 30 years of working life left, but in your 60’s and older, it may not be so easy.
One option, though, may be Equity Release. It basically allows older people to pull money out of their property and not have to make a monthly payment if they don’t want to. Obviously, there are risks to that in that it will reduce the value of the property for inheritance tax purposes as the interest is added to the loan.
Helping with Affordability
Perhaps, as a parent, you are not just thinking about providing a deposit but actually helping your child pay their mortgage? Without the right advice this could be more costly than you first imagine. By getting a joint mortgage with your child you could negate their first time buyers status and have to pay all the increased Government tax (Stamp Duty) on the purchase.
By purchasing the property on a joint borrower, sole proprietor basis, parents can use their spare income to help with affordability of the loan. However, they have no legal ownership which helps offset changes in HMRC Stamp Duty tax rules and inheritance tax limits.
I have only touched the surface about how the Bank of Mum and Dad could help first time buyers. There are other options which I am very happy to discuss and can recommend based on a review of your own individual circumstances.
Our website also has lots of information:
Your property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.
asset plus+ Mortgage Solutions is a trading style of asset plus+ Financial Ltd, an appointed representative of The Right Mortgage Limited, which is authorised and regulated by the Financial Conduct Authority.
Registered in England no: 05859399. Registered Address: Umpleby Accountancy, Basepoint Business Centre, Bridge Road, Haywards Heath, West Sussex RH16 1UA
There will be a fee on completion for advice. The precise amount will depend upon your circumstances, but we estimate that it will be £300.