How can I help my son get on the property ladder?
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Diane Fish is an Independent Financial Adviser with Smith & Pinching, Chartered Financial Planners, advising on the full range of mortgages and other lending options.
Our son would like to get on the housing ladder but he doesn’t have any savings for a deposit and has only been working for a few months after leaving university. His job is reasonably well paid so he shouldn’t have any trouble making the repayments. We have a mortgage on our house which we’ve been paying off for 20 years, plus we have about £50,000 in savings accounts and investments. We’d like to help him buy a house but don’t feel we can give him money outright for his deposit. Can we act as a guarantor for his mortgage?
Diane Fish of Smith & Pinching responds:
It is becoming increasingly common for families to want to help the younger generation get onto the housing market, particularly now as there are less low deposit mortgages available. There are four principle ways to do this.
First, you could simply give your son the money for his deposit – a gifted deposit. Clearly this would be expensive for you, and I can understand that you might feel nervous about giving him all your savings.
The second option might be a guarantor mortgage, where you provide security for your son’s loan through your own property or savings. You would be liable for his mortgage repayments if he were unable to make them himself and you would need to provide proof of income and affordability. This does entail risk on your part and if the property is repossessed, you would be liable for any shortfall between the loan amount and the selling price. The current availability of this type of mortgage is very limited.
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A third option could be a “family assistance” arrangement. This can take various forms: you could, for example, borrow additional funds from your existing mortgage company to provide him with his deposit as a gift, or accept a charge of an agreed percentage of your son’s mortgage, backed by a savings deposit or a portion of your property. Again, these types of mortgages are few and far between currently.
Finally, you could potentially look at some form of joint ownership of the property with both your name and your son’s on the mortgage agreement. An offer of this type of arrangement would consider your own affordability assessment for repayments as well as your son’s. In addition, if you are included as the joint owner on the deeds as well as the mortgage, there may be a second property stamp duty surcharge to pay on your share. Several lenders now offer lending on a joint application, sole proprietor basis.
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Do get advice from an independent mortgage broker to explore what might be the best route for you and your son. In the current market, there are fewer options for all the above types of arrangement, so advice will be critical.
Your home may be repossessed if you do not keep up payments on your mortgage. There will be a fee for the mortgage advice. The precise amount will depend upon your circumstances, and the type of lending taken. Smith & Pinching’s minimum advice fee is £700. Any opinions expressed in this article do not constitute advice.
For more information visit www.smith-pinching.co.uk