With the average deposit for a First Time Buyer now pushing £30,000, it is understandable that so many turn to the Bank of Mum and Dad for help. There are a number of ways in which parents or grandparents can help, and not all of them involve handing over their savings.
One First Time Buyer approached the mortgage service for the Guild of Professional Estate Agents, originally intending to purchase a property in her sole name, and putting down a 15% deposit using a combination of her own savings and a gift from her father. After speaking to a mortgage adviser she decided to proceed with a fixed rate to ensure her payments were stable for the first 2 years of her mortgage.
Unfortunately the client fell short of the strict calculations used by lenders to assess affordability, and the available borrowing dropped significantly. After a discussion with her family, her father offered to buy the property with her, taking the mortgage in joint names and therefore combining their income to increase the borrowing potential.
Guarantor mortgages are rare today, but most high street lenders are happy to lend to a parent and child on a joint basis, even though the parent will not be living at the property. Applicants must be mindful of potential Capital Gains Tax liabilities, as it is not the parent’s main residence. Some lenders however, including the bank used for this application, will allow the mortgage to be taken out in joint names, and the property title to remain in the child’s name only.
The age of the older borrower can be an issue, and in this case the lender required that the term of the mortgage be reduced to fit in line with criteria, but both applicants confirmed that they were happy to proceed on this basis. With the help of family, the deposit was increased to 20%, taking the mortgage into a lower Loan-to-Value bracket and allowing their mortgage adviser to secure a lower interest rate.
Guild Mortgage Service, Provided by London & Country Mortgages
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