The ‘Bank of Mum and Dad’, has helped many people to buy their first home. The ‘Bank of Gran and Grandad’ is becoming a more common option too, with 1 in 10 first-time buyers receiving help from their grandparents. There are several ways families can help.
Help with gifted deposits
A gifted deposit is money given by a family member, as all or part of a deposit for somebody buying a property. This can be a necessary way for many to get a foot on to the property ladder, but there are a few things to consider:
- The person gifting the money should seek independent legal advice
- If the money is a gift, then a contract is sometimes required to declare that they have no interest in the property and no right to get their money back
- The lender and or solicitor may want a bank statement or similar to confirm where the gifted money is coming from
- The gifted deposit can be used in conjunction with the applicant’s own savings
- Most lenders are happy with family gifts but not with gifts from friends or third parties
With a guarantor mortgage, a parent or family member guarantees that if the buyer misses their mortgage repayments, they step in to make the payments.
This means the guarantor needs to be sure that the borrower can afford to make the repayments. And, in the event they can’t has sufficient income themselves to make the payments. If the guarantor fails to make payments requested of them, they could face legal action themselves.
Family offset mortgages
Family offset mortgages let parents or grandparents put their savings into an account linked to their child’s mortgage. The money in the savings account is then deducted from the mortgage, making repayments cheaper. Parents will be able to get their money back in full, but they may have to lock it away until 75% or 80% of the property’s value has been paid off, which can take many years. Another occasionally overlooked disadvantage is that they won’t receive any interest on their savings while they are offsetting their child’s mortgage.
Family deposit mortgage
Some lenders now offer mortgages where a family member deposits cash in a special savings account and the money is held as security against the mortgage. If the mortgage borrower defaults during this period, the money will be taken from the savings account, but if all goes well, it won’t cost the family anything. The family member still gets interest on the money, although the rate might not be as good as other savings accounts.