Getting onto the property ladder, as a first time buyer has become increasingly hard in recent years. As the average property value is now around 6.7 times the average person’s UK salary, according to Halifax. With the average deposit needed to buy a home hitting almost £62,500. But, in this article, we have listed 5 ways you can help your children get onto the property ladder.
First time buyers are facing heightened property prices, increasing mortgage rates and a cost of living crisis. This is why many families across the country are looking for ways that they can help support their children with purchasing their first home.
What Is The Property Ladder & Its Benefits?
The property ladder is a term used across the UK to describe the housing market and your position on it. Another term ‘getting on the property ladder’ refers to when people are working towards purchasing their first property.
The idea of the property ladder is that each time you buy and sell you would be purchasing a property of increasing value, hence the term ‘moving up the property ladder’.
There are plenty of benefits of being on the property ladder, some of which we have detailed in our latest blog post, ‘5 benefits of being on the property ladder.’ Benefits such as:
How To Help Your Children Onto The Property Ladder
For thousands of first time home buyers, getting onto that first rung of the proverbial property ladder can be stressful, daunting and somewhat disheartening. This is why many parents and family members may wish to help their offspring make that leap onto the ladder and purchase their first home. The good news is that there are plenty of ways you can help. Such as:
1) Gifting Money
Gifting a sum of money towards a property deposit is one of the most common ways parents help their children purchase a home.
According to the Institute of Fiscal Studies (IFS), 50% of first time buyers in their 20s have financial help to obtain their deposits. With the average gifted sum being £25,000, almost half of their deposits.
Gifting your children a sum of money helps them to acquire the desired funds quicker, whilst also helping them put down a larger deposit (depending on the overall value of the house), resulting in reduced monthly mortgage repayments.
Please note: If you’re gifting a monetary value to your child, you may have to abide by certain rules, such as:
- You can gift up to £3000 a year tax-free, per person (if you don’t use your annual exemption in previous tax years this can be carried forward)
- Gifted deposits must be 100% a gift, with no expectation of receiving any return of the money or a service in return
- You may need to provide gifting evidence to the mortgage lender upon application
- Inheritance tax may impact your gift
2) Loaning Money
If you’re unable to gift the money for the deposit to your children, loaning the money can also be a good way to help your child get onto the property ladder.
For some families, gifting a large sum of money, without the assurance that they will see it again, may not be possible. This is why lending the money and setting up an achievable repayment plan could be helpful. Unlike bank loans, loans from family members may have a reduced or no interest rate.
Please note: That a lender will consider this loan to be a debt and will take into consideration the repayment plan when checking their applications. So your loan could boost their deposit, but it could also affect how much lenders are willing to loan them in the form of a mortgage.
See our blog post, ‘6 reasons why your mortgage application was refused’ and ‘5 steps to increase your chances of mortgage approval’ for more information.
3) Guarantor Mortgages
If providing a lump sum payment to your child for them to use as a down payment isn’t possible, you could consider being a guarantor for the mortgage. By using your own property or savings as collateral for your child’s mortgage you can help your child be approved for a mortgage.
A guarantor mortgage is where a family member will take on the risk of the mortgage, acting as a guarantor for the lender. This normally involves putting some of their savings or their home as collateral against the mortgage, whilst also agreeing to cover the mortgage payments if the homeowner misses a payment.
In some cases, lenders will allow you to borrow 100% of the property’s value, without needing a deposit by using your parent’s savings or home in place of a deposit.
Please note: If you sign up for a guarantor mortgage, if the main homeowner was to miss the payments, your property could also be repossessed and sold.
4) Joint Mortgages
If your child doesn’t meet the requirements to be approved for a mortgage on their own, parents may wish to take out a joint mortgage with their child.
In these circumstances, both the parent and the child will be named as borrowers on the mortgage loan and owners on the property’s deed. Doing this means that the lender will take into account your income and savings as well as your child’s.
Please note: If you already own your home, you will have to pay the stamp duty at the second-home rate. You will also be financially responsible for mortgage repayments.
Find out more about stamp duty in our blog post, ‘Do I need to pay stamp duty? All you need to know’.
5) House Your Child Rent Free
While we have covered various financial options that parents can do to help their children get onto the property ladder, there are also various non-financial options available to help support their child. Such as:
- Allowing your child to live at home, rent-free or at a reduced rent for them to save money for a deposit
- Encouraging your child to start saving for a home from a young age, as little as £20 a week will help to increase their deposit savings over time
- Educate your child about mortgage rates, inflation, risk of having too many unpaid debts and more
For more information on how to save for a deposit, see our previous blog posts:
- A complete guide to UK mortgage types
- What are the benefits of being a first time buyer?
- What is a mortgage in principle, how to get one and why do you need it?
- How to save for a mortgage in the cost of living crisis?
How Can The Levels Financial Help?
At The Levels Financial, we offer free initial consultations to all of our clients, and offer tailored help and advice on various aspects of the mortgage process, applications and more.
For more information, or to see how we can help you get on the property ladder, contact our team today at admin@thelevelsfinancial.co.uk or call us on 01458 772 040.
Please Note
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed
