Today’s generation of first time buyers have been hit by a period of sustained property price increases in many parts of the country. As a result, finding a deposit large enough to qualify for the better mortgage deals may be difficult without substantial parental assistance. But parents may not be in a position to hand over money as a gift, however much they would wish to help.
The size of the deposit, relative to the purchase price, is a key factor for mortgage companies. If they are lending a high proportion of the price of a home they will generally regard that as a higher risk meaning buyers could miss out on the better mortgage deals.
Help for buyers
There are alternatives to traditional mortgages which allow first time buyers and their parents to work together to reduce costs and make a first home more attainable. The Family Mortgage offers three ways to help do this:
1 – Parents can provide security by depositing savings into an interest bearing account which will help to reduce the mortgage rate for the buyer.
2 – Similarly, parents can use some of the equity in their own property as security, again, helping to reduce the interest rate for their first time buyer.
3 – Parents can place savings in an offset account which won’t pay interest but will help to reduce the level of mortgage interest for their son or daughter, because they will only pay interest on the mortgage minus the amount in the offset account. The offset account also provides security for the mortgage and so helps to reduce the mortgage rate.
With the Family Mortgage you can use one, or any combination of these approaches to help a child buy their own home. The arrangement is designed to last ten years, after which it will be unwound and subject to qualification criteria at that time and affordability, be replaced by a more standard mortgage. Those family members providing financial support need to appreciate the potential for their assets to be at risk. However, to help manage that risk, mortgage repayments will be met for up to six months should the buyer become unemployed through no fault of their own.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
This article was prepared by The Family Building Society which has been established to help families work together to solve today’s financial problems. To find out more about the Family Mortgage please go to our website www.familybuildingsociety.co.