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 insurer 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 their 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
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.’
CASH IN POPERTY
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.