Of the 300,000 first-time buyers in 2014, more than half of them required help from either parents or grandparents to secure a reasonable deposit, according to data released by the Council of Mortgage Lenders.
According to experts, it is possible for a parent of grandparent to help their child or grandchild out financially, while benefiting from the transaction themselves. By lending the money for a larger deposit, the mortgage payments are reduced along with the amount repaid after the initial period. In addition, by charging interest on the loan, parents will gain more than they would from a savings account.
In London, nearly two thirds of first-time buyers need help from older relatives to secure a deposit. A number of lenders will offer special schemes or guarantor mortgages that are designed for those who need help from parents. However, the individuals concerned can arrange this themselves. Although it would be typical to arrange the repayment of the capital and interest over the term of the loan, it can be arranged to suit both parties. As the capital is tied up in property for a long term, the money wouldn’t be available at short notice.
There are several ways that this could be arranged, including parents having a share of the equity when the property is sold. If the loan is to be repaid on a monthly basis, the amount has to be disclosed to the lender so that it can be factored into affordability calculations. A mortgage adviser who has studied for CeMAP training will be able to help both parties find a beneficial arrangement.
