In 2022, there have never been more options available when it comes to buying a home, or helping a loved one to buy theirs.
During the Covid-19 pandemic, according to the Guardian, first-time buying hit a 19-year high, while the Stamp Duty holiday between July 2020 and September 2021 enabled already-established homeowners to buy a new home and pay less tax.
Nevertheless, as we emerge from the initial stages of the pandemic, people of all ages are finding it difficult to secure their dream home. According to The Times Money Mentor, house prices increased by 11% in the year to January 2022.
What’s more, the Telegraph reports that mortgage affordability checks are becoming more stringent, as the rising cost of living squeezes buyers’ budgets. In addition, the BBC reports that UK wages are failing to meet the rising cost of living, causing further financial struggles in many households.
Luckily, there might be ways you can lend a hand to loved ones who are hoping to become homeowners in the coming months or years.
Here are four ways you can help a loved one get onto the property ladder.
1. Gift or loan money towards a deposit
For people who are yet to buy their first home, one of the biggest challenges they face is putting together a deposit.
According to a 2021 report from Financial Reporter, the average Brit takes more than six years to save for their first home – which is longer than many people would prefer to wait to get onto the property ladder.
Plus, with affordability checks beginning to tighten, and the high cost of living impeding many people’s savings, it might be harder for even the most frugal of savers to put away the money they need for their first home. Statista reports that the average UK home deposit stood at £53,935 in 2021 – and house prices overall have tripled since the year 2000.
If you are in a position to provide either a gift or a loan to a loved one, this injection of capital could be the difference between buying a home now, or waiting a number of years longer.
You can discuss with your family member whether it is more appropriate to offer this money as a gift or a loan. But, however you decide to help, it is important to consider how parting with this money could affect your own financial situation.
For example, 2018 research by Legal & General found that 20% of Bank of Mum and Dad “lenders” downsized their home in order to lend money to children for a home, while 16% took a lump sum from their pension pot to help out.
Gifting large amounts of money could affect your quality of life now and in the future, so it could be beneficial to review this decision with your financial planner first.
2. Act as a guarantor on their mortgage
If you have a trusted loved one who is struggling with their mortgage application, you are not alone.
According to data published by MoneyAge in December 2021, only 35% of first-time buyers were able to secure a mortgage on their first attempt. In addition, 20% said they had been rejected more than once.
By acting as a guarantor on somebody else’s mortgage, you are agreeing to make mortgage payments on their behalf if they become unable to pay. Your loved one might be able to borrow more in this instance because a lender may see them as a lower risk with your financial support in place.
While acting as a guarantor on a loved one’s mortgage could be a great way to help them buy a property, it may be wise to conduct a review of your own finances before you sign your name on the dotted line.
Taking on this liability may incur further risk to your own financial stability, because you will be liable for 100% of the repayments (and 100% of the debt) if your loved one fails to keep up their side of the deal.
Nevertheless, becoming a guarantor could be the perfect way to help your loved one onto the property ladder without lending a large chunk of money in the initial stages.
3. Take out a joint mortgage with your loved one
An alternative to lending a deposit or becoming a guarantor is taking out a joint mortgage with the prospective buyer.
By combining your income with your loved one’s income on the mortgage application, you are more likely to meet a lender’s affordability criteria, perhaps enabling them to buy the home they want.
Like all financial commitments, taking out a joint mortgage poses some risk to your personal wealth. If you already own other properties, for example, you may pay additional Stamp Duty on the new property.
You may be able to consider taking out a “joint mortgage, sole proprietor” mortgage with your family member. This means that your income is still stated on the mortgage application, but the person buying the home is the sole owner of the property.
4. Take out a “family” mortgage
While these mortgage products vary between lenders, a family member who is able to provide financial help deposits an agreed-upon amount into a three- or five-year fixed savings account, in lieu of a traditional “deposit”.
Your loved one will be the sole proprietor, even if others have provided funds to help them purchase the property. After three or five years, you and whoever else entered the “deposit” into the savings account can have the funds returned to you, provided that the proprietor keeps up with their mortgage payments.
There are some caveats to this type of agreement, including that your loved one may not be able to use a family mortgage to buy a new-build or a self-build property.
This option could be ideal if you aren’t in a position to give a deposit as a gift, but you want to help a family member onto the property ladder.
Get in touch
If you want to support a loved one on their journey to securing a new home in these difficult times, we can help.
Before offering up your hard-earned savings, it may be constructive to review the above options, plus any other ways you could help, with us.
Email firstname.lastname@example.org or call us at 0207 808 4120 to find out more.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.