Gaining a first foothold onto the property ladder is daunting enough for first time buyers without the stress and strain of having to put together a sizeable deposit.
According to the Council of Mortgage Lenders (CML), the average first-time buyer deposit in September 2017 was 17.3% of the purchase price, which amounts to around £31,236 - that’s 118% of an average salary. In fact, the average first-time buyer borrowed 3.63 times their income, and the average first-time buyer loan was an estimated £163,987.
1. Help your children with first time buyer savings
Keep telling them that regularly putting money aside in the right place can help build up a deposit pot. When you’ve got nothing to sell first, the deposit really matters as the higher the loan-to-value rate you have, the better chance of a good interest rate. Rather than birthday presents or new shoes, they may want to contribute to savings accounts designed to help first time buyers build up a nest egg, such as the Lifetime ISA (with an annual tax allowance of £4000, which the Government tops up with a 25% bonus) or the Help To Buy ISA with just £200 saved a month.
2. Encourage them to budget for a deposit
Even if your child and their partner have reasonable incomes, they still need to show they can afford repayments - lenders want to know how much of it you spend. Previous generations were taught to scrimp and save for a deposit, without the temptations of expenses like high street coffee, gym membership and daily meals out - so it may be worth encouraging them to sacrifice some luxuries and cut back on outgoings they may not even miss, for the greater long-term good.
3. Remortgage your own home
Securing additional borrowing on the parents’ home, whether by increasing the mortgage term, setting up a new mortgage or freeing up cash from equity release if they are over 55, are all options that could help provide the funds necessary for a deposit, though it may not fit into the plans of every parent.
4. Get a joint mortgage
If the parents are in a strong financial position, with a good income and perhaps having paid off their own mortgage, it could help reassure lenders that there is less risk involved. Like any joint credit application, it would link up the credit reports of all involved on the mortgage agreement and would therefore make you all equally liable for repayments and any damage to your credit rating if things went wrong.
5. Provide guarantor mortgages
To help with mortgage approval if you have trouble finding a deposit or a poor credit score, and need a 95/100% mortgage, one way parents could help is to act as a mortgage guarantor. This means being named on the mortgage with you, and promising to cover your mortgage repayments if you fall into trouble. To do that, they’ll have to use their own property or savings as security, leaving their own home potentially at risk.
6. Encourage your children with good financial habits
Some first time buyers may believe that lenders want them to metaphorically jump through hoops to be eligible for mortgage deals, but in most cases lenders just want to be sure that they are lending to someone reliable, not too much of a risk and with a reasonable record of paying back money owed. So remind them that managing their day-to-day finances well, and proving that they can keep up to date with payments on credit cards, mobile phones and utility services is important - and even if they get down, help them realise that it’s in their own hands.
7. Help them shop around for mortgage deals
There’s plenty of choice out there for first time buyers, and it pays to look around for the deals that suit you best. Parents may have previous experience of reliable advisers, while it may pay to have friends who can recommend others. Online resources like mortgage calculators and comparison websites can help you work out the right deals before you speak to a broker or financial adviser.
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