Helping your children onto the property ladder

Experienced financial adviser Ellen Roome of The Finance Roome on how parents can assist their children financially in buying their first property

"I hate seeing my daughter struggling to get on the property ladder. How can I help her to buy her first home?"

It is a struggle nowadays for first-time buyers – particularly in the Cotswolds, where prices remain strong and often deter young people from looking at buying their own home.

Resultingly it is becoming more common for parents to help their children, and we list below some of the ways to do this.

The conventional thing to do is to gift money to fund a deposit. Obviously, this is a great help, but how much help is dependent on the amount available. If you aren’t lucky enough to have the cash lying around you could release equity from your current property to provide deposit funds for your offspring or maybe even enough for them to buy a property outright. Talk to a mortgage adviser that is skilled in this area at the outset.

Parents also need to consider whether they might want the money re-paid at some stage and indeed if they might ever unexpectedly need the money back. Consider, too, that if your child separates from his or her partner and they have bought a home together, recovering the money might well be problematic. If you wish to go down this route it is essential to obtain legal advice from a conveyancing lawyer.

There is another very handy option which is perhaps less well known. The property could be purchased having joint borrower but sole proprietor. This can help a close family member to buy a first home or perhaps move up the ladder. The Finance Roome has arranged many such mortgages and not just for first-time buyers but for clients looking to move after life-changing events such as divorce or employment changes. Some lenders will even allow up to four applicants on the mortgage and up to four incomes can be considered. Here are three examples of when we have used this option recently:

  1. Daughter split from her partner, and being self-employed hadn’t drawn enough income (as hadn’t needed to) through her own Ltd company. The father and step-mother both went on the mortgage alongside the daughter to use the parents pension income to boost the daughter’s. We even managed to arrange this on an interest-only basis thus keeping payments low. So the daughter was able to purchase a property at £410,000 and keep monthly repayments on the mortgage of £250,000 at only £416 per month – much cheaper than renting a 3-bedroom semi.
  2. Husband and wife moving to a different area to enable the husband to change jobs. Most of his income was commission-based and would continue to be so, but as he had just started a new job there was no proof of commission available to use when approaching the new lender. The parents decided to go onto the mortgage to boost the amount they could borrow. This enabled them to buy at £595,000 and their interest-only mortgage of £410,000 was just £613 per month.
  3. A first-time buyer, who was living at home, wanted to boost what she could borrow. The father, a British Airways Captain went onto the mortgage to allow her to buy at £285,000 and her repayment mortgage of £242,250 was £1,276 per month.

Another benefit to consider with these types of mortgages is that if this is a main residence and no other properties are owned in the background then there is no extra stamp duty for the (proprietor) clients to pay.

It is worth noting that joint borrower/sole proprietor mortgages exist for both residential and buy-to-let loans.

PLEASE MAKE SURE YOU TAKE LEGAL AND TAX ADVICE BEFORE CONSIDERING THIS TYPE OF MORTGAGE.

Ellen Roome runs a team of very experienced advisers at The Finance Roome Ltd. They have a wealth of knowledge in dealing with complex financial situations with regards to mortgages and all types of insurance. Call 0203 588 3353 or visit www.thefinanceroome.co.uk.