Do you worry you may be renting for years to come and possibly never possess your own bricks and mortar?
It’s a growing demographic. Over the next five years the number of people living in privately rented accommodation is set to rise from a fifth to a quarter of the UK population1
And for parents who would like to see their children take their step on to the property ladder, the first rung can seem very high.
The average first-time buyer deposit in the UK is now nearly £32,300 pushed up by the astronomical average deposit required in London, which is currently £100,4002.
But there are several ways parents can help their children get on to the property ladder.
Parents lending you the money
For people with cash in the bank, it can seem illogical to earn wafer thin returns from a savings account when they could lend the money to their children and co-invest in a property that, so far this year, has risen in value by nearly 6% on average3.
The amount of money expected to be loaned by parents to children – aka the Bank of Mum and Dad – will be 30% more this year, and total some £6.5 billion. The average loan is set to be £21,6004 and if these parents were a lender, they would be the ninth largest mortgage firm in the UK.
In London, 40% of all first-time buyers received financial help from a family member in one form or another5.
One common way to achieve this is for both the parents and children to hold joint ownership and both be named on the deeds and mortgage. The upside is that the incomes of both owners can be considered by the lender when calculating a loan – so you could borrow more.
Release equity
The simplest way parents can help their children without plundering their savings is to remortgage their property and release some equity – the logic is that parents with good credit histories can get a better rate to borrow money via a remortgage than a child may be able to.
Improve your credit score
Before first-time buyers apply for a mortgage they need their credit score to be at its optimum level to both get their home loan accepted, and access the best rates. CreditLadder can help you achieve this by enabling your monthly rent to be added to your credit history, which in turn can raise your score.
Guaranteeing your mortgage
If children are struggling to get a mortgage then one trick is for parents to guarantee their debt. This means if the children miss their mortgage payments then the parents will have to step in. But it can help reassure lenders. Parents will have to be named on the mortgage, although not usually on the property’s deeds.
Get an offset mortgage
Several lenders offer offset mortgages. Parents put their savings into an account that’s linked to the child’s mortgage and it ‘offsets’ the debt, so the child only pays interest and repayments on the outstanding debt, not the whole loan.
Get a joint borrower mortgage
The latest kind of mortgage is called a ‘joint borrower and sold proprietor’ home loan. This enables children to use their parents’ income to borrow more money and at a better rate, while parents keep their names off the mortgage and property deeds.
Find out how more about CreditLadder
Sources:
1. https://www.theguardian.com/money/2017/jun/12/one-...
2. https://static.halifax.co.uk/assets/pdf/mortgages/...
3. http://landregistry.data.gov.uk/app/ukhpi
4. https://www.legalandgeneralgroup.com/assets/portal...
5. https://www.theguardian.com/business/2017/may/02/b...
CreditLadder can help you improve your credit score
If you want to improve your credit position by reporting your rent payments, CreditLadder is the only way to improve your credit score and position across all four of the main Credit Reference Agencies in the UK, namely Experian, Equifax, TransUnion and Crediva. Building up a high credit score has a lot of benefits, including helping you access finance at better rates - this can also help save you money.
CreditLadder also runs a free mortgage application service in partnership with Tembo which will tell you how much you could borrow.
Remember the information provided in this article is for information purposes only and should not be considered as advice.
