There has been a huge hike in property prices over the last 10 to 20 years, while salaries have not had the same increase. Is it really that surprising, then, that so many young people looking to own their first property look to their parents for help?
Fortunately, mortgage lenders have responded to the demand and offer various offers that appeal to parents and first-time property owners, even if they can’t afford the normally non-negotiable deposit. Family assist mortgages are becoming more and more popular.
An option that’s favoured by many parents and their children is the joint application with a parent added to the application. There are some lenders who will allow four different people to apply for their mortgages. They can do this because they base the affordability of the applicants on the two biggest incomes listed.
This works because if the parental applicants are on higher salaries than the children applicants, they can make borrowing more accessible. This will also reduce the amount of deposit required.
If you are trying g to work out whether family assist mortgages are the way to go for you, we’ve put together answers to some of the most pertinent questions below.
Are They More Expensive Than Traditional Mortgages?
In general, not always. There are some that are better value for the money they cost and offer arrangements that work well for all parties involved in the mortgage application.
What Kind of Deposit is Required?
Most mortgage companies will look for the buyer to pay at least 5% of the house price upfront as a deposit. If you don’t have that kind of money, or your child doesn’t, though, there are many who will allow the parental applicants to make the deposit. This is called a family deposit mortgage. There are other financial companies who will provide the opportunity of opting for a legally binding charge on the property owned by the parents in lei of a deposit, known officially as a guarantor mortgage.
Who Has the Responsibility of Paying Back the Mortgage?
The applicants named on the documents for the mortgage. It really doesn’t matter if they are named on the title deeds or not. In the case of guarantor mortgages, the guarantor takes the responsibility to pay the mortgage when the applicants can’t. As this can be very complicated to understand fully, it’s something you should seek independent and professional advice about.
Can the Money be Protected?
We not only advise that it can be protected but that you really should do that as a priority. Many who gift a property mortgage to their children or who lend money to one of their kids who are buying property with their partner or spouse do not realise they can protect this money and investment.
While the reason why this is not discussed readily, you should find that most reputable mortgage brokers will mention it.
What If Circumstances and Situations Change?
You need to think carefully when choose the mortgage and lender and factor in the future into your calculations. It may be a good idea to take a family assist style mortgage with the provisory that the child will eventually start paying it themselves.