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5 July 2007

Help your child get onto the property ladder

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by Kay Mitchell

Help your child get onto the property ladder

Soaring property prices and increasing debt means that many young people are unable to afford a home. Mortgage lenders are creating new products but many are relying on the ‘bank of mum and dad’.

50% of first-time buyers are loaned or given cash by their parents to put down a deposit. 25% of parents are using their savings and investments and others are allowing their children to stay at home for longer while they save.

If parents or even grandparents can afford to give money to young people to get them onto the property ladder, this is advantageous. The bigger the deposit, the lower the monthly mortgage repayments. In addition, parents or grandparents giving money can help cut inheritance tax – providing a person lives for at least seven years after giving the cash away.

Another option for many parents is re-mortgaging to release money as some just don’t have the cash to give to their children.

A parent could also act as a guarantor for their child’s mortgage – so long as the parent earns enough to cover the debt. Most lenders will require the parent to guarantee 100% whereas some will ask for a share, say 25%. If the child fails to make payments, the lender will take this up with the parent. Parents have to assume that the child will eventually take on the full mortgage.

Some parents may not want to depart with cash so these could consider family offset mortgages. This allows a parent to use their savings to offset against the mortgage debt so they only pay interest on the balance.

However, if the above are not an option, if you are entitled, consider professional and graduate mortgages – if you expect a large salary increase, these can help. You could also consider buying with friends or siblings.

Begin with an interest-only mortgage and then swap to a repayment mortgage at a later date. If a deposit is the problem, sign up for a 100% mortgage.

Most mortgage terms are 30 years but this can be increased to reduce monthly repayments but the cost will be high.

Check your local housing association for assisted-purchase schemes, this allows you to buy a share of the property with a mortgage and you pay rent on the rest.

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