We’ve recently looked at the challenges facing first-time buyers as a result of rising house prices and property taxes. First-time buyers paid an average of £256,057 for their home last year, according to the Times, an increase of 10% on 2019.
Considering the barriers first-time buyers face, it’s perhaps no surprise that parents are increasingly supporting their children to get onto the property ladder.
Figures from Legal & General show that an estimated £6.26 billion of assistance was provided by parents to help fund their children’s property purchases in 2019, with parents lending or gifting an average of £24,100 to help their children.
However, not all parents have the liquid assets to help with a deposit, or the means to lend or gift a significant sum.
As David Leek from Teachers Building Society says: “A lump sum gift won’t necessarily make enough difference for them to be able to purchase a home if they have a lower income or are in a higher value area.”
However, if you’re a first-time buyer there are other ways your parents can help you with your home-ownership ambitions that don’t simply involve writing out a cheque.
Innovative mortgage schemes can use a parent’s income to help support a mortgage application, so read on to find out more about these “joint mortgage, sole proprietor” deals, and how they could help you.
Use a parent or grandparent’s income without putting them on the deeds
One of the obvious ways that a parent could help a child onto the property ladder would be for them to go on the mortgage, with their income used as part of the mortgage affordability calculations.
However, this can have implications for the parent. As well as being jointly responsible for the mortgage payments, the parent may also have to pay second-property Stamp Duty rates if they already own a home.
To get around this issue, several lenders offer “joint mortgage, sole proprietor” arrangements. These allow parents to use their incomes to help their children get on the property ladder without having to go on the deeds of the property.
Teachers Building Society are the latest lender to launch such a scheme. Here, the mortgage is structured so that up to four people can be jointly responsible for payments – perhaps a first-time buyer couple and two parents – but only one needs to be on the property deeds.
Two of these borrowers can use their income towards affordability calculations, potentially enabling a bigger loan.
Skipton and Principality building societies also offer similar deals, as does high street bank Barclays, which will consider allowing its standard residential mortgages to be taken out on a “joint borrower, sole proprietor” basis.
The Teachers Building Society mortgage is available to teachers and first-time buyers who have a 20% deposit, a regular income, and are borrowing between £25,000 and £1.5 million. The scheme is only available through a broker such as Altura.
The interest rate is 3.19%, although borrowers with irregular incomes will pay between 2.9% and 3.4% on loans of £100,000 to £1.5 million.
The mutual also says that it will accept the incomes of parents or grandparents whose income is derived from non-traditional sources, such as investment or rental income, as well as any pension income.
The idea is that the homeowner will eventually take on the mortgage alone when their salary increases, or they are employed in a more secure job.
This type of scheme can work extremely well for a first-time buyer because:
- The parents or grandparents do not have to go on the deeds of the property, so this avoids paying second-property Stamp Duty
- Children don’t have to give their parents or grandparents any “ownership” of the house
- It enables the buyers to take on the mortgage in their own right as their income grows.
For example, a first-time buyer earning £35,000 with a parent still in work could add their parent to the mortgage. The parent’s income could be used to increase the borrowing potential without the parent being given any ownership of the house.
This type of scheme could also help couples where one person is self-employed and finding it difficult to get a mortgage because of the variable nature of their income.
Get in touch
If you think that this type of mortgage arrangement could work for you, we can help. Many of these schemes – including the one offered by Teachers Building Society – are only available through firms like ours, so we’re ideally placed to advise you.
Email [email protected] or call us on +44 (0) 20 3786 7270 to find out more.
