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How can I help my child get their first mortgage and flee the nest?

first mortgage

Sky high property prices and the cost of living make buying a home a daunting prospect for many homebuyers. In order to save every penny, more and more young people are choosing to remain at home with their parents.

If you’re one of these parents, it’s likely that you’ll be counting the days until your children are able to move out of your home. Whilst it may be nice to spend time together, there comes a point where everyone just needs their own space.

So what can you do to help your children flee the nest sooner rather than later?

Give your child a gift (or a loan)

One of the biggest obstacles for first-time buyers is finding that all important deposit for their first mortgage. One of the most common ways that parents help their children is by funding this initial down-payment.  This could help them get a better rate on their mortgage.

It’s important to consider whether you offer this money as a gift or a loan. If you can afford to give the money as a gift, then this will typically be looked upon more favourably by the lender.  This is because it’s one less debt that the mortgage holder will need to pay back.

But beware: money given as a gift could be subject to inheritance tax. If parents die within seven years of giving their child money, this amount will still be treated as being part of the estate.  You child may need to pay tax on the money you gave them.

Inheritance Tax doesn’t apply if the gift is less than £3000 in any one tax year.  So if you want to give a larger sum of money, you could avoid this by paying in annual instalments, but you’d need to think ahead to do this!

Become a guarantor

If you don’t quite have enough in your savings to offer up for a deposit, then there are other ways to help out.  Some of these do come with an element of risk attached.

If your child is struggling to get their first mortgage, whether it’s through lack of deposit or their credit rating isn’t up to scratch, then you may be able to act as their guarantor.

This means that if your child fails to make their mortgage payments, then it is your responsibility to cover the costs.

You can do so from your regular income or savings if you can afford to do so.  In some circumstances, you may be required to remortgage your own property in order to make the repayments. Hopefully your child will be responsible enough to make the payments so this worst-case scenario can be avoided.

Offset your savings

Instead of using your property as collateral, a lender can use funds held in your bank as security.  This is a good way of helping your child get their first mortgage if you can’t physically give money away.  Your savings effectively act as their deposit.

Savings are usually offset against the mortgage for a limited period – typically around 3-5 years.  After which, the money is released back to the parents, with interest. The lender will only retain the money if your child fails to make their mortgage repayments.

Encourage your children to save – as early as possible.

You could start helping children to save from a young age by opening a suitable savings account.  Even using piggy banks/money jars at home is a good start. Getting them into the savings mindset whilst they are young can go a long way to helping them become financially independent as they get older.

If you want to help them save, you may want to consider opening a Junior ISA on their behalf.  You can pay into this, tax-free, each year. The annual tax-free allowance for 2018-19 is £4,260.

Older children may want to think about a Help to Buy ISA.  This is a government scheme to encourage first-time buyers to save regularly for a deposit. Up to £200 can be deposited each month with the government rewarding the saver with a 25% bonus – up to a maximum of £3,000. Whilst the Help to Buy ISA must be opened in your child’s name, parents are allowed to pay money into the account.

Speak to SoSmart Money about first-time buyer mortgages.

The above post does not constitute advice – financial, legal or otherwise. The information within this article is the author’s own opinion and do not necessarily reflect the views of SO Media or So Smart Money.


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