Friday, 10 November 2017 12:49

Do you want to help get your kids on the property ladder? Read these tips to ensure you do it right.

It’s nothing new to read reports of how hard it is to get on the property ladder and it certainly isn’t a new trend for mum and dad to step in and give their children a helping hand when it comes to deposits and selecting a good first home.

In fact, it is now so much of a ‘done thing’ for parents to help out their offspring that statistics reveal that as many as one in five house purchases in Britain is funded either primarily or in part by parents. In fact, money lending from parents is now so common that parents are now the eighth biggest mortgage lender in the country. The parent building society really is on the march.

Whilst it should never really come to the fact that mums and dads have to pay for their children’s homes, the fact of the matter is, it is happening because people can’t get mortgages and can’t save for deposits that are required.

But what kind of impact will this have on parents’ coffers and what kind of sacrifices will they have to make in order to fund these massive purchases? Ultimately, someone is going to lose out. And it could be you. What if you’re the one being asked for a mortgage? Here’s what we think you should do.

Because kids can’t afford mortgage rates and are more than likely going to get rejected by mortgage providers, the bank of mum and dad (you) have to sort it out, but where does the money come from? Re-mortgaging your own home? Dipping into the savings that you have worked so hard to build up?

It’s quite a sad state of affairs that people like you who have worked hard all through life and have saved up tirelessly then have to give it all up to help the children simply because the cost of living is so ludicrously high.

We’re not for one moment saying that parents should begrudge helping their children, but it does seem somewhat of an ask, especially if there is more than one child to support. Parents could very easily nearly bankrupt themselves trying to help their children if they are not careful.

With the latter point in mind, we think parents, whilst doing all they can to help their little darlings, need to have some caution when splashing the cash. You, the parent, need to firstly establish realistically how much money your kids can afford to lend without getting themselves into financial difficulty. What’s the point in shifting financial burden from one place to another?

The first thing that needs to be done is a family financial assessment. It may sound quite serious and unnecessary between family members, but actually it is very important that boundary lines are drawn as offspring need to realise that parents haven’t got an endless amount of cash to be divvying out.

First and foremost, you need to know your financial limit. It can often be hard saying no when your kids are desperate to get on the property ladder but if the money isn’t there for your comfortable living after the money has gone, risks shouldn’t be taken.

If it is too much of a tight struggle to lend the money, maybe other arrangements could be made. Never feel bad about having to be honest about your current financial situation and never be afraid to say no. Some parents have been known to lend the money to their offspring but ask for the money to be paid back in small instalments on a monthly basis. There is nothing wrong with this. It will give the young ones the leg up that they need but will also get the money back into your account at a steady pace meaning the money will constantly be filtering back in which shouldn’t see you out of pocket. It will also be the best loan a child of yours could ever get, no interest payable and miniscule repayments to you in comparison to what would’ve been expected had they gone to a bank or building society.

As well as looking at affordability from a lending point of view, it is also important to look at your child’s finances, and in particular their credibility and stability when it comes to making mortgage repayments.

You should st down with your child and see how much money they have coming in on a monthly basis. Two heads are better than one and it isn’t patronising to want to see if they are financially stable and have done their maths correctly – it is a good and responsible thing to do as a parent as the last thing that anyone needs is a default on a mortgage payment. It may be that they have miscalculated how much certain things are such as water and electricity, or it maybe that they have forgotten all together that they have to pay for certain insurances etc. A sensible voice from someone who has ‘been there and done it’ is by far the best advice for anyone looking to get on the property ladder.

Parents also need to be aware that unexpected scenarios crop up in life which may mean that your child may struggle to make repayments, you will need to be prepared for this situation and able to withstand it should something arise. If they are purchasing the house with someone else for instance and that relationship ends acrimoniously, then assets may need to be split and settlements agreed, lots of things need preparing for.

Another option, and one that is growing in popularity all the time is for parents to actually go on the mortgage with their kids.

From a lending perspective, joint mortgages are far more preferred than guarantor loans and a lender would be more likely to grant a mortgage if the parent, with an in-tact and enviable mortgage history, is partly responsible for the property. A bank or building society will take into consideration the income of the parent and the property search could then be widened to bigger and better things.

The above scenario may sound good if all parties are in agreement and parents can afford it, but if you do take this route, please be aware that some charges may be incurred. First and foremost, parents could see taxes and charges if they are known to be second home owners. Liability for capital gains tax could also be felt. There are ways to get around this but it would be advisable to get someone with the know-how to talk you through it.

Ultimately it is a parent’s decision when it comes to how far they are willing to help their children get on the mortgage ladder. Some have the decision made for then by simply not being able to afford to lend them any money because their own savings are depleted, whereas others are a little more hesitant because they want their kids to stand on their own two feet.

It has to be said, however, from the research we regularly gather, many parents would do anything to help their kids out as they know first-hand how hard it can be out there. All that we ask is that parents know all the ins and outs of mortgages and understand that they should never leave themselves short in a bid to fund their kids – as this could have disastrous consequences for all the family. Help, yes, but do not bankrupt yourselves.

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