As property prices in the UK continue to hit record highs, it’s perhaps no surprise that more and more first-time buyers are seeking help from relatives.
Indeed, the most recent research from Legal & General has revealed that the “Bank of Family” is expected to help fund more than 2 in 5 (42%) UK property purchases made by those under the age of 55 in 2024.
If you’re thinking of helping a loved one, this may be particularly pressing considering that the temporary increase in the threshold at which first-time buyers pay Stamp Duty will end on 31 March 2025.
Help from family will support 335,000 housing transactions in 2024 – the largest number of property purchases since Legal & General began tracking lending from family members in 2016. The research also found that gifting from parents and grandparents is predicted to hit £11.3 billion by 2026.
If you’re considering helping a loved one onto the housing ladder, here are five ways you could use your property wealth to support them.
1. Be a guarantor
When you guarantee a mortgage, you essentially agree to take responsibility for the debt and repayments if your child or grandchild cannot. You’ll normally have to use your savings or your home as collateral.
The drawback with a guarantor mortgage is that you’ll be responsible if your child defaults on their mortgage payments. You may also pay a higher interest rate than more traditional deals.
As a guarantor, you must also seek independent legal advice. You can only be released from your responsibility when the borrower is in a position to cover the entire mortgage or if the loan is repaid in full.
2. Provide a gifted deposit
Gifting or loaning money towards a deposit is one of the most common ways parents and grandparents help a relative buy a home.
Firstly, you should clarify whether the money is a gift or a loan. If you expect the money to be repaid, you may want to put this in writing or create a legal agreement.
Your child or grandchild’s mortgage lender will likely require proof that the money came from you.
- If you’re giving the cash as a gift, you can normally supply a letter confirming the gift, stating that it won’t need to be paid back.
- If you are lending the money, you’ll also need to confirm this as the lender will want to factor these loan repayments into its affordability calculations.
A lender may also require you to sign a declaration that you have no legal interest in the property, and you may have to provide bank statements as proof of the gift or loan.
Remember also that your estate might be liable for Inheritance Tax (IHT) if you die within seven years of gifting the money.
3. Use a “family mortgage”
Many lenders now offer a specialist “family mortgage” to help older generations support the house-buying aspirations of a child or grandchild.
Under this type of arrangement, you can use your assets as security against the mortgage – and you often don’t have to gift or loan any money.
Under certain schemes, you can deposit savings with a bank or building society and these savings will be offset against the value of the money borrowed. This reduces the amount of interest the borrower will pay and increases their chances of securing the mortgage they need.
You’ll normally have to put down 10% of the property price and keep these funds in a savings account for three to five years. If your child continues making their monthly repayments throughout that time, you’ll normally have your funds returned to you – often with interest – after this period ends.
4. Use a “joint borrower sole proprietor” mortgage
A “joint borrower sole proprietor” mortgage is an arrangement where both you and the borrower are named on the mortgage but only your child/grandchild will be named on the property deeds.
By doing this, a lender will consider your income in addition to that of the borrower, potentially increasing the amount they will lend.
The main advantage of this approach is that you can avoid the Stamp Duty “second property” surcharge. This is particularly beneficial considering that the surcharge rose from 3% to 5% in the 2024 Autumn Budget.
As with a guarantor mortgage, you will be responsible for the repayments if your child/grandchild does not maintain them.
A lender is more likely to accept this type of application where the child can prove their earnings will rise significantly in the future.
5. Use equity release
If you have money tied up in your home, and you’re over the age of 55, you may be able to use equity release to generate a sum you can gift to a child or grandchild.
You typically don’t have to make a monthly repayment under an equity release scheme as the interest “rolls up” and is repaid on death or when you sell your home in the future.
Among Legal & General’s customers, 1 in 10 used equity release for financial gifting in the first six months of 2024.
Remember that, if you take out a loan and live for many years without paying off any interest, it’s likely that a significant amount of interest could accrue. This will reduce the equity in your home and mean you leave less to your beneficiaries.
Your estate might also be liable for IHT if you die within seven years of gifting the money.
Equity release is a big commitment, and it can pay to speak to our equity release expert if you are considering using your property wealth to gift in this way.
Get in touch
If you’re looking to help a child or grandchild onto the property ladder, we can help.
Please get in touch to find out more. Email [email protected] or call us on +44 (0) 20 3411 0079.
Please note
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Equity release will reduce the value of your estate and can affect your eligibility for means-tested benefits.
