Nottingham Mortgage Services explain how parents can offer their financial help.
Hundreds of thousands of first time buyers are turning to the ‘bank of mum and dad’ this year to help get a foot on the property ladder – including older children who have long since cut the apron strings.
One of the main reasons parents are keen to help is to improve on their child’s credit rating by acting as a guarantor or providing a deposit. This will help them get a better mortgage rate. These options are different from giving a financial gift of money (which could have a tax implication.)
If parents go down the route of offering to deposit a lump sum with a mortgage lender, as a form of financial guarantee, this will have the least tax implications because the funds are only there to act as security. It is the same if parents offer their own property as security.
If you’re keen to help your children but are still wondering how, here are some ways to consider doing so:
Guarantor mortgages
With a guarantor mortgage, a parent or close family member guarantees the mortgage debt. This means that if the buyer misses their mortgage repayments the guarantor will have to cover them.
Family offset mortgages
With family offset mortgages, parents or grandparents put their savings into an account linked to their child’s mortgage. The money in the savings account is then deducted from the mortgage, making the child’s repayments cheaper.
Family deposit mortgage
With family deposit mortgages, a family member deposits cash in a special savings account and the money is then held as security against the mortgage.
Flexible family mortgages
A parent or family member can use some of the value in their own property as security. Another option is for the family member to place savings in an offset account which reduces the amount of the mortgage on which interest is charged.
Gifted deposits
The parent gives a deposit to their child for the purchase of property.
Joint ownership
In this case both the parent and the child will be named on the mortgage and the deeds. The size of the loan will be based on the earnings or assets of both parent and child and if one of them stops paying, the other one will become liable for the debt.
One of the best ways to find the right mortgage is to seek help from a mortgage broker. They will work on their customer’s behalf and negotiate between them and the mortgage lender. There are two kinds of mortgage brokers, those who use a panel of lenders and those who search the whole mortgage market to find the most suitable lender. At Nottingham Mortgage Services (part of The Nottingham), the team of brokers provides a ‘whole of market’ service, searching over 50 lenders.
For first time buyers, or people with a poor credit history, a mortgage broker can offer advice on how to build a credit score that attracts lenders. Often it is about knowing the right lenders to approach.
As there is a risk of repossession if mortgage payments are not maintained, it is always important to make an informed choice. Your home may be repossessed if you do not keep up repayments on your mortgage.
For more information about Nottingham Mortgage Services call 0344 481 0013, visit a branch of the Nottingham Building Society or visit www.thenottingham.com/mortgages.
