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Helping children get onto the property ladder is something many parents wish to do for their children. As well as being helpful, as a parent, you may feel it’s an excellent way to support your children invest in their future. Helping your child get a mortgage can feel more rewarding than simply providing cash or covering living expenses. Many parents favour assisting children in securing a mortgage because it encourages them to take on financial responsibility while still giving parents a way to step in and provide financial support if needed.
The kind of mortgage will make sense for you will depend on how you want to support your child.
Guarantor mortgages can be a great option. Most lenders require deposits for guarantor mortgages, and you will need to use assets, savings, or your own property (provided you have paid off the mortgage) to cover this. The deposit lenders will require will depend on your financial situation and overall wealth – in some cases, a deposit will not be necessary, but this will tend to be for select individuals rather than the majority of the market.
Your child will be responsible for making mortgage repayments, but you will be liable to pay for the mortgage if your child misses mortgage payments. Despite this, you won't be named on the property deeds – your child owns the house. This type of arrangement can be great if you want to help your child get a mortgage, but they will have some steady future income to make mortgage repayments themselves. This type of mortgage is often ideal if you want to help your child buy a property after they complete their studies and start their first job, for example.
Another option is a joint mortgage. Here, you and your child will be named on both the property deeds and the mortgage, which you will both be liable to pay. You will be required to make repayments for your child if they default on their portion of the mortgage.
A joint mortgage will see you take on a longer-term role in helping your child purchase their home, which many parents are happy to do. Joint mortgages are ideal if you are unsure how quickly your child will increase their income to be able to afford the full mortgage themselves.
However, remember that because both you and your child own the property, you will need to make decisions about it together – neither you nor your child will be able to make big decisions about the property or sell it without the other’s consent.
Whatever option you opt for, your own finances will be carefully scrutinised by lenders, and it’s helpful to know that you’ll effectively be going through the mortgage application process yourself.
Your age, income, assets and broader financial footing will all play a part in how flexible lenders are and what you will be offered. In principle, lenders will want to ensure that you can cover mortgage repayments easily if your child were to default. If you are close to retirement, this could also affect your ability to act as a guarantor, although again, this will depend on your financial situation.
If you guarantee your child’s mortgage or opt for a joint mortgage, you are effectively on the line if your child doesn’t make repayments. Your own home will be collateral for the loan, and you could stand to lose your property.
It’s also vital to consider structuring. Depending on what kind of mortgage you opt for, you may have to pay stamp duty as a second homeowner (usually in the case of a joint mortgage), so understanding what you will be liable to pay is critical to ensure you aren’t taken by surprise. Again, in the case of a joint mortgage, capital gains taxes can also be applicable if you sell a property in the future which has appreciated in value, so being aware of these elements is also essential.
Lastly, it’s crucial to have clarity over your expectations. Some parents want to get their children set up with a mortgage but then see their child take over repayments. Other parents are happy to provide more ongoing support. There is no right or wrong way to approach helping your child with a mortgage, but ensuring your child knows how you envisage the scenario working and what you expect from your child is central to a happy situation.