Mortgages for Your Children

The record increases in house prices has caused an increase in intergenerational wealth inequality. Basically, people who bought houses 20 years ago, have benefited from a rise in wealth. However, the younger generation face an uphill battle to get a mortgage.

Therefore, many parents feel obliged to help their children get a mortgage.

There are various ways for parents to help their children.

1. Lend a deposit at a low interest rate.

To get a 5% deposit of a £200,000 house can be very difficult for a graduate struggling to pay off their student loans. In the past 10 years house prices have been rising so fast that by the time a first time buyer has saved £10,000 the value of houses have increased significantly. A deposit enables a first time buyer a much better chance to get on the property ladder.

2. Act as a guarantor.

This means that a mortgage is lent against the value of the parents income, rather than the children. It means you are responsible for meeting mortgage payments. This probably requires to use your existing house as equity.

3. Buy a house as a second property and sub let it to your children.

This means you retain complete control over the house and just rent it to your children. This makes it easier to divide the wealth in your will. However, it may cause more inheritance tax.

• Student Mortgages - A Guide
• Mortgage with help of parents