by Mark Johnston
Helping with the mortgage no longer means having to provide actual cash. In the current climate many lenders have been forced to design some innovative schemes that write parents in to the home buying process.
Figures have shown that in over 50% of first time buyer’s purchases, they have received some help from parents.
If a potential first time buyer can not get a big enough mortgages for the property they want then parents can be a guarantor on their mortgages, providing their child has a decent deposit. However, not all lenders will accept parental guarantors, but theHalifax, Nationwide and Cheltenham & Gloucester are some of the exceptions.
These particular mortgages allow a parent to guarantee any shortfall in income multiples and with these mortgages, rather than just assessing their financial circumstances lenders also consider parents assets and savings.
The disadvantage of guarantor mortgages is that the parent is guaranteeing to meet any repayments should the borrower fail to meet the payments, which can be risky especially if the guarantor has a mortgage of their own.
As the guarantor does not receive any statements or communications from the lenders they will not find out if the situation deteriorates until their guarantee is called in.
The mortgage works offers specific guarantor mortgages which include a 2 year fixed rate at 5.59% for a loan to value (LTV) of 85% with a fee of just £395.
The Aldermore also offers to lend first time buyers up to 100% of a properties purchase price, but it will take a charge on parental equity on any borrowing above 95% loan to value (LTV).
Another option for parents is to go in with their children and buy a property together. It seems that in the economic climate more and more banks are offering mortgages aimed at family member buying homes together.
There are significant benefits that come with buying a property with a family member, the main one being that it allows children to get on to the property ladder quicker and more easily than they would otherwise have been able to.
Having a co-buyer also means that first time buyers can consider a bigger property in a better area.
Barclays have recently launched a new mortgage scheme that allows parents to help their children with loan affordability.
The ‘family affordability plan’ allow parents income to be taken in to account with out them being named on the property deeds. The plan allows parents and children to pool their income resources to secure a larger loan.
Stuart Gregory, director at Lentune mortgage consultancy, says “there has been a reduction in the number of guarantor type products in the market over the past few years, so to have this is very positive”.
There are disadvantages to joint buying such as added extra legal costs, disagreements can occur especially when money is involved and also working out finances can get complicated.
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