Tips for parents helping their child onto the property ladder

Helping your child onto the property ladder has become a natural and common thing to do these days. 

There is however more to this than simply handing over the cash.  In this article  we look to highlight some pointers which every parent should keep in mind when planning to provide financial assistance. 

The first point, and one which is pretty fundamental, is to consider whether you can purchase the property outright.  If this is not possible then you will need to do some research to find the best mortgage product available.  Lenders are more vigilant than ever during the mortgage application process  and it is therefore essential to be honest about your financial circumstances. Don't exaggerate your income to secure a larger mortgage. If you are helping with a gift and your child is applying for a mortgage make sure they disclose your gift to the lender.  

You may be  advised to make sure you put your names on the title deeds.  You will need to ensure the property is registered at the Land Registry  with you and your children holding as tenants in common.  This means  in the event of the death of one of the owners the deceased’s owners stake in the property will pass in accordance with his or her will.  So make sure you also update your will. Also keep in mind what will happen to the property and your child’s home if you were to die. 

There will if you are named on the title deeds be tax implications so make sure you talk through your plans with a tax expert before you commit. 

If you don't wish to be named on  the deeds then make sure your intention when making the money available is clear.  Is it a gift or a loan? If its a loan will you be charging interest?  

Even though they are your children you will need to seek independent legal advice. See a solicitor and get a legally binding agreement drawn up. To safeguard a loan or investment, make sure it stipulates the nature of any arrangement and steps are taken to ensure the property can not be sold without your consent.  Keep in mind that if you are making a gift and not taking a stake in the property your child’s solicitors will require you to provide evidence of identification and the source of funds which you will be using. 

There are other options available.  You could offer to be a guarantor for your child to get a mortgage.  You could look to remortgage your property.  Its best to explore all options with an independent financial advisor. 

Finally  take care - don’t put yourself in a financially risky predicament by overextending yourself and don't assume that mortgage interest rates will remain at the same level. You shouldn't rely on your current good relationship with your child – things can go wrong. 

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidp@mjpconveyancing.com

Will the Mortgage Guarantee Scheme trigger a 'Boom and Bust' legacy for the Conservative Party?

The mortgage guarantee scheme is designed to help first-time buyers and existing property owners move up the housing ladder providing borrowers with a 5% deposit the opportunity to buy property worth up to £600,000.

The Government will guarantee up to 15% of the loan at a cost to the lender, allowing the borrower to access cheaper mortgage deals.

This differs from the first stage of Help to Buy.   That scheme allows people taking their first step onto the property ladder to borrow up to 20% of the value of a new build home from the Government, interest-free for the first five years.

Borrowers need a 5% deposit and must take out a mortgage to cover the remaining 75% of the cost of the property.

After the five-year interest-free period ends, borrowers will be charged a fee of 1.75% of the loan’s value. This fee will increase every year at 1% above inflation.

These fees only count toward the Government loan and come on top of the mortgage repayments. Borrowers must pay back the equity loan when they sell the home or at the end of the mortgage period - whichever comes first.

The mortgage guarantee scheme  - Help to Buy 2 - is available to both first-time buyers and existing homeowners buying new build and older properties.

Borrowers will need a 5% deposit, while the lender will be able to buy a guarantee from the Government covering up to 15% of the value of the property.

Both phases of the scheme are available on properties worth up to £600,000.

So what are the pitfalls?

If house prices fall, hundreds of thousands of buyers on the scheme could be left in negative equity.

If a property is repossessed because of default of the borrower, the Government will guarantee 75% of the part of the loan above 80% of the loan to value. The borrower will meet the other 25%.   If there is insufficient funds to meet the loan the borrower will still be liable to the lender for the whole of the loan even the part guaranteed by the Government.

The other key question is whether mortgages offered through the scheme will actually be any cheaper than those on the market at the moment, and whether enough lenders will take part.

Banks need to pay a charge to have their mortgages guaranteed by the Government, so are likely to build this sum into the total cost of the loan.  It is likely that a sum equivalent to 1% of the value of the property is to be placed into a reserve to cover defaulters.  The cost of this will be passed onto the borrower.

Are these schemes the real solution to Britain’s housing crisis?  Will they not keep house prices artificially high, giving people no choice but to take out large loans that could run out of control if interest rates rise?

Cambridge University study found last year that although shared ownership schemes allow them to buy their first home, they do nothing to help them buy their next home.

Cynics will say all of this amounts to nothing other than political engineering reminiscent of the type of policy that led to the ‘boom and bust’ years.  Ironic in some way given this is a Conservative policy.     We will just need to see what time brings. 

MJP Conveyancing  are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk