Thursday, 5 October 2017

The bank, house and guarantee of Mum & Dad

A couple of weeks ago I wrote about the savings that could be made if you could just find a little more deposit money (as if by magic!) for your house purchase. One avenue often taken is to get financial support from parents or other relatives, but did you stop to consider that this could come in a few different forms...

1. The bank of Mum and Dad
Borrowing money from your parents or other family members is certainly not a new concept and may well be how you’re able to scrape the deposit together for the purchase of your first home. But with savings accounts offering pitiful rates, might it be possible to borrow that little bit extra whilst even paying the kind relative some interest to lower your overall borrowing costs, whilst boosting their return on savings too?

2. The house of Mum and Dad
If your relatives don’t have cash in the bank to lend you, might they be able to use some of the equity in their own home to access finance cheaper than you can? Re-mortgaging their home to 60% of its value can come with an interest rate of 0.99%, which is significantly cheaper than the rates a first time buyer can borrow at (1.79% is currently the cheapest rate for a two-year fixed mortgage with a 10% deposit).

3. The guarantee of Mum and Dad
There are some mortgage products out there that don’t need the actual cash to act as your deposit, but instead undertake a guarantee over a parents home or savings account so that should you fail to pay the mortgage they will make up the difference. This is much the same way as a parent might act for a tenant as a guarantor, underwriting their financial obligations should they not pay their rent.

With Millennials spending three times more of their income on housing than their grandparents it’s no wonder that current first-time buyers are struggling to save the deposits required to get on the housing ladder. A recent thinktank study suggests that today’s thirty-year-olds are half as likely to own their own home than their baby-boomer parents,

As 100% mortgages and gifted deposits are a thing of the past, first-time buyers are instead looking to the previous generation of homeowners to use some of their wealth, which has largely been generated from property, to help them buy their own home.

(This article was featured in the Chichester Observer's property section on 5th October 2017) 

Clive Janes, CRJ Lettings.


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