It has never been harder to get a foot on the housing ladder. House prices are now nearly eight times the average wage, and they have been rising faster than most can save.
Almost one in four first-time buyers are now turning to the ‘Bank of Mum and Dad’, figures from Aldermore Bank show.
And 30-year-olds whose parents have no property wealth are 60 per cent less likely to be homeowners, according to the Resolution Foundation.
But if you can’t hand over a hefty deposit to your loved ones, you could still lend a hand.
Last week we explained how you can aid them in preparing potential first-time buyers’ finances to get mortgage-fit in two years. Here, we explore other ways to help them get the keys to their first home…
A family offset mortgage is similar to the savings and mortgage account option, but instead of getting interest on the money in the account, it is used to reduce the mortgage cost
Use a family offset mortgage
Families can also use a savings account to slash the interest a first-time buyer pays on their mortgage.
A family offset mortgage is similar to the savings and mortgage account option, but instead of getting interest on the money in the account, it is used to reduce the mortgage cost.
How to track down the right mortgage
If you want to aid your children or grandchildren buy a home, helping them find the best mortgage can be a major assistance.
It may be that you give or lend them money and they take out a standard mortgage, or they may opt a specialist deal such as mortgages that enlist parental help.
Whichever route you take, a good independent mortgage broker can help – they can discuss the options, point you in the right direction and explain how banks and building societies treat gifted deposits.
In advance you could research the options discussed in this article and draw up a short list of those that seem interesting.
The buyer will need to get the mortgage advice, but you can help them along the way and potentially even go on a phone call with them
This is Money’s carefully chosen mortgage broker partner is London & Country. It has a fee-free service, with independent advisers who can talk you through the options.
> Check out mortgage deals on offer and find out how to speak to L&C here
When the mortgage lender checks whether the first-time buyer can afford the mortgage, they will base the assessment on the lower monthly payments, after the parents’ savings have been taken into account.
For example, if a mortgage of £150,000 was taken out, and £50,000 savings was deposited in the account, the borrower would only pay interest on £100,000 of the mortgage.
Family Building Society and Yorkshire Building Society are among those which offer the deal.
Parents will get their money back after a fixed period. This is usually ten years, but it can reviewed earlier — for example, when the borrower’s fixed rate comes to an end.
The drawback is that the money is locked away for a period and will not earn interest for the parents. It could also be eroded by inflation.
If the house is repossessed or sold for less than the loan amount due, savings in the offset account can also be used to foot the shortfall.
But in a low interest rate environment, savers may prefer to forego earning a small amount of interest in favour of helping their children pay less towards their monthly mortgage payments.
Kim and Alison Wilkinson, both 60, from Surrey, used a Family Building Society offset mortgage to help their daughter Sarah, 26, buy a £260,000 three-bedroom terraced home in Portsmouth, Hampshire.
The couple had built up savings but did not need to use them in the short term. Earning next to no interest in a savings account, they decided to put the money to better use.
Secondary school teacher Sarah’s mortgage with Family BS was fixed for five years at 2.89 per cent.
‘Mum and Dad wanted their money to work as hard as possible,’ says Sarah. ‘By putting it in the offset account, it effectively earned 2.89 per cent.’
While she could afford the monthly repayments without her parents’ help, she says: ‘This reduced my mortgage payment from around £750 to £550, which gave me more disposable income to furnish the house and enjoy treats such as holidays, which I may not have been able to do as a first-time buyer.’
Podcast: How to invest and save for your child
It might not be on the top of your to-do list when you have a child, but investing and saving for them to build a tidy nest egg for when they reach adulthood is best done sooner rather than later.
In this episode of the This is Money podcast, editor Simon Lambert, assistant editor (and new parent) Lee Boyce look at the best ways to save for your children.
We discuss investment options, Junior Isas, a pension and other ways, and why ‘the hardest step is the first, but it is also the most powerful’.
Lee has a target of a £50,000 pot to build up for his new daughter ahead of her 18th birthday in 2036 – and discusses how he plans to achieve this, with a little help from Einstein’s eighth wonder of the world, compounding.
Cash in on your own home
Income-poor older homeowners with plenty of property wealth could unlock their home’s equity to help.
Equity release is available to borrowers aged 55 or over. It allows homeowners to gift their property wealth now, instead of waiting until they die and their house is sold.
In the first half of 2018, close to 20 per cent of borrowers taking out equity release used the money to help family, according to Canada Life.
The only has to be repaid only when the homeowner dies or moves into long-term care. There are also options that allow borrowers to pay the monthly interest if they want to reduce the cost of the overall loan.
This can also reduce your inheritance tax liability, as the value of the equity release loan will be deducted from the overall estate when the inheritance tax bill is calculated.
Rates on equity release mortgages are higher than traditional mortgages. The average interest rate is 5.24 per cent, compared to the average two-year fixed rate of 2.49 per cent on a traditional mortgage.
Interest is also rolled up and added to the loan monthly, which can double the debt every 14 years.
Parents or grandparents should seek legal advice before entering into a family mortgage arrangement.