The high cost of getting on the housing ladder means that it is taking ever longer for children to move out of the family home. Having them still there when they are in their thirties, and you are thinking about the pleasures of a well-earned retirement has become a real possibility.
It is hardly surprising that many parents are looking at ways to help their children buy a home of their own.
What may be much more surprising is that there are actually a number of solutions designed to make it easier for young people to buy that first home. At Continuum, we can help make them work for you.
The Government can help
The Government has several options for first-time buyers. The Help to Buy equity loan scheme allows them to buy a newly built home with just a 5% deposit by providing 20% as a government loan, or an even more generous 40% loan in London.
The Lifetime ISA can also be important and gives a generous bonus to those saving for a first home. There are also shared ownership schemes for home buyers who cannot afford to buy outright.
However, despite all these schemes, it seems the Bank of Mum and Dad is still the major source of funding for first time buyers. Mum, Dad, grandparents and other family members help with more than a quarter of first-time purchases and were forecast to part-finance more than 205,000 first homes this year.
But what can you do if you don’t have any cash to spare?
You probably don’t want to remortgage your own home, or dig into your pension pot. With a guarantor mortgage, you don’t have to.
It is suitable for anyone who owns their home outright, and who wants to help someone – usually a son or daughter – get on the property ladder.
How it works
With a guarantor mortgage, you provide security, usually your own home as security against the loan, and agree to cover the mortgage payments if the homeowner misses a payment.
Alternatively, If you have some spare cash which you want to hold on to, it may be possible to place it in a locked account with the lender, to provide security. You may still earn interest on it.
The homebuyer will then need to provide a small deposit although 100% mortgages may be available, and will make the repayments in the usual way.
You could in theory remain their mortgage guarantor until they have paid off the loan in 25 or more years’ time. In practice, most people who use a guarantor mortgage will only do so for a few years, and will remortgage to a more conventional product as soon as funds, and hopefully the increased equity in their home will permit.
Positives and negatives
On the plus side, your offspring may not only be more likely to get a mortgage, they may be able to borrow more or qualify for a lower interest rate.
The main downside is that as the guarantor you could become liable for any shortfall if things go wrong. A missed repayment or two might not be a problem. However if the debt became so serious that your progeny’s property had to be repossessed and sold, you might find yourself responsible for the shortfall if the sum raised did not cover the debt.
What is right for you?
The guarantor mortgage provides one option for a growing number of people looking to buy their first homes, so it is hardly surprising there are also a growing number of guarantor mortgages – not just deals for first time buyers, but some with special arrangements for those with small deposits and those buying for investment.
Of course, even when you have decided on the type of guarantor mortgage that is right for your family, there are still many lenders and many rates to choose from.
Mortgages can be complicated, and the lowest rate might not always be the best deal in the long term – so the best choice of all can be to get an expert working with you.
At Continuum, our mortgage experts can help you get the mortgage that’s right for your family, help your children get a home of their own – and help you get your own home back. Call us now and we will get to work for you.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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