Thinking about asking your parents for help with your first time mortgage? Don’t worry you’re not the only one! There are several ways parents can help you buy your first home, like when it comes to mortgage deposits, advice, and guidance. After all, they’ve done it before!
If you’re a first time buyer and considering using ‘The Bank of Mum and Dad’ to help you buy that dream home and secure your first mortgage, you’re not alone. My parents plan to help me with my first home and I am forever grateful and very lucky - not that they’d ever let me forget it!
A recent survey from Home Owners Alliance shows that; ‘77% of people who don’t own property would like to but can’t afford it. Two thirds of them said they were struggling to save a deposit.’
Here we go, here are the 7 ways parents can you help with a mortgage.
Option 1. The Gift of all things... Deposit
And what a gift it would be.
In some situations, a ‘deposit donation’ or the ‘gifting of a deposit’ from parents or relatives is a likely option.
Meaning, a parent or guardian may be able to support you by contributing the entire deposit, or a chunk of the deposit, of a property as a gift on behalf of the mortgage-seeker, without any means of repayment.
The contribution value (£) of your deposit depends on the value of the desired property. If we consider the average price for a house in Northern Ireland to be £140,580 (March 2020) and take 20% as the recommended minimum deposit size you can perceive a contributional deposit of £28,116.
If you believe your parents or guardian to be this generous, or if they are in a position to help, all they are further required to do is to create a written and signed document reading that the gift is entirely genuine and they have no legal interest in your home. Perhaps you can take them for dinner to say thank you.
Option 2. A Deposit Loan
Similar to a ‘Deposit Gift’, a way that a parent or guardian can help with a mortgage is by loaning the deposit to you.
A realistic discussion involving both parties is necessary to attempt to clarify both, (i.) The loan amount required to cover your deposit and, (ii.) How you intend to repay your loan deposit.
The amount of loan is discretionary to the giver of the loan's financial ability and therefore may affect how much you can borrow. E.g. it may be a matter that your parents can make 80% of the deposit but not the full amount, which again should be clarified during your prior discussions. This will also save you both from any surprises down the line.
A case study shows that in 2018, 27% of all UK buyers received help from family and friends in regards to their deposits and mortgages. So don’t be discouraged when asking for a bit of help.
Tips: Be sensitive, prepared, precise and frank. See the tips in more detail here on how to talk about Deposit Loans and have financial conversations with your family, from both children and parent’s perspectives.
Option 3. Parents as a Guarantor on Mortgage
Another way that parents can help you with a mortgage is by becoming a mortgage guarantor.
It simply means that your parents or the chosen guarantor would be liable for paying your mortgage if you find yourself in a situation where you cannot keep up with repayments. You could consider this option as a repayment ‘safety-net’.
To become a guarantor your parent must have a stable income which could cover your mortgage repayments, as well as their own mortgage and any personal spending.
To increase the chances of being an approved guarantor in the eyes of your mortgage lender, a good credit score proves financial stability.
Find out what it takes to be a mortgage guarantor here.
Option 4. Offset Mortgage Plan
If your parents or family have a ‘savings account’ your mortgage repayments can be linked to the same account which will help you when it comes to your mortgage repayments.
The higher the amount of savings, the less overall cost of repayments you will have to make as your savings are used to ‘offset’ the value of charged interest.
It’s worth mentioning that if you are considering this way of help for a mortgage, some mortgage lenders will have a ‘minimum savings deposit requirement’ which acts as a security feature between your intact savings account and mortgage lenders. It basically evaluates if you are a good match for this option.
Option 5. 100% Mortgage Plan
If your mortgage is linked to your parents or family’s savings account and acting as a guarantor, you can side-step paying a mortgage deposit upfront altogether in some cases.
Instead, your parent or relative gives between 5% and 10% of your deposit over the space of 3-5-years (depending on the scheme) to your tender or bank.
Banks running the scheme include;
- Halifax (Family Boost Mortgage)
- Ulster Bank ( 95% Mortgages)
- Barclays (Family Springboard Mortgage)
- Lloyds (Lend a Hand Mortgage)
Speak to your Mortgage Broker, they will find the best deal for your circumstances.
Bonus for your parents. After the 3-5 year threshold, they can expect to find the deposit returned to them plus any accrued interest!
The mortgage repayments will then continue in your name. Happy days!
Option 6. Joint Borrower - Sole Proprietor Mortgage
In a Joint Borrower - Sole Proprietor mortgage you can consider your parents as a second-party mortgage borrower and yourself as the first-party borrower and in this scenario, only one name is used legally against the property.
Parents helping you with a mortgage by using this option not only means that your parents are contributing to your repayments but also that it is your name documented on the property and your parents won’t jointly own your home.
Option 7. Parental Concessionary Purchase Mortgage
Let’s break this down.
A ‘concessionary mortgage’ is a mortgage that has been discounted from its market value price.
Therefore, a ‘parental concessionary purchase mortgage’ is the purchase of a discounted mortgage from a parent or family member.
With this understanding, another way that a parent can help with a mortgage is by selling their property to the children at a discounted rate.
FYI: Your mortgage lender will have to complete necessary checks including confirmation that the property will be your main place of residency if this is the option you choose to go for.
Parents, did you know…
- That 1 in 4 first time buyers turn to The Bank of Mum and Dad for mortgage help?
- You can lend your child their deposit on your own repayment terms? (A Deposit Loan)
- You can give all or part of a mortgage deposit as a non-returnable gift to your child?
- Some of the most competitive mortgage interest rates are for mortgages that include a parental guarantor?
It’s normal to have questions! Send them over to us here.
For inspiration, check out Questions To Ask Your Mortgage Broker.