Mortgage with Help of Parents

• Is it a good idea to get a Mortgage with the help of your parents?
• Is it a good idea to help your children get a mortgage?

In the UK House Prices have risen much faster than average incomes. This means that, despite rising real wages, young people are finding it increasingly difficult to get on the property ladder. This situation is also predicted to get worse. A report by the Association of Mortgage lenders predicts a further 40% rise in house prices over the next 5 years. This is against a backdrop of a fundamental shortage in supply.

With this depressing state of affairs, how can young people get a mortgage?

1. One option is to consider self certification. However, without a large deposit, they will find it to be an expensive option. There is also the real problem of having to borrow much more than income.
2. A second option is to consider a joint mortgage. This is when you share a mortgage with someone else. However, the immediate downside is that you have to share the house; disputes may arise and it will never feel like you own the house in its entirety.

When other options have proved to be unworkable, young adults often look to their parents for help in purchasing their own property. Parents who bought their house 20-30 years ago are often in a position to help their children because of the equity growth that they have benefited from.

How Parents can help Children Get a mortgage

1. Remortgage their house and use money as a deposit for new house.

Remortgaging enables parents to release equity from the value of their house. This deposit can be used to help get a mortgage with a better deal. A good, large deposit, often opens the potential for getting a bigger mortgages, especially self certification mortgage.

2. Act as Guarantor.

A mortgage guarantor means that if the new mortgage borrower defaults on paying back mortgage payments the bank can ask the parents, who act as guarantor, to pay the mortgage payments. This reduces the risk for the bank. They know their loan is much safer.

3. Get a mortgage in their name.

The other option is for the parents to get the mortgage in their name and simply get their children to pay the mortgage payments directly to them. This is kind of like a family buy to let scheme.

Should Parents help children get a mortgage?

This is a slightly more difficult question to answer, especially if the parents have several children. It really depends on the relationship between yourself and your children. However, the fact house prices have risen have created a situation where there is almost a moral imperative for the older generation (who have benefited from rising house prices) to help the young generation who really struggle to get on property ladder.

If you have concerns about lending children money, a slightly safer option is to buy a second house and rent it to your children at a fair market rate. This means you can benefit from any equity gains, knowing you can leave these asset rises to your children, if you so desire.

See also: Getting Mortgage on low income

First Time Buyers Guide