Buying a home with the help of parents

Four in ten first-time homebuyers has help from their parents for their property purchase, according to the lender Bradford & Bingley.

Given recent property price inflation it is hardly surprising that most young buyers now need a helping hand to get on the property ladder and there are lots of ways parents can help, from simple cash handouts and loans through to acting as a guarantor on the mortgage loan.

Bradford & Bingley's survey of first-time buyers also found that of those who had help from parents, 50% were given some or all of their cash deposit – this is more than double the number who received help towards a deposit last year.

'Giving a cash deposit is often the favoured option for both parents and their offspring,’ says an independent mortgage broker. ‘The cash gives the child the cushion of equity in their home and gives them access to better mortgage interest rates, but the parent does not have their own name on the property or the mortgage thereafter.'

An increasing number of parents are offering to buy property with their children – either with cash or through a joint mortgage. However, with this option the parent and child’s finances are inextricably linked and there may be tax implications for the parent if they do not live at the property – so get expert advice.

Parents who have seen their own property’s rocket in value may feel comfortable releasing some equity from their own homes to pass on to their child. The simplest way to do this is by remortgaging.

Equity release plans are another way to get at the value locked up in your home but get independent advice before taking this route. There are different types of equity release plan and they are often not particularly good value.

Family offset mortgages, offered by Cheltenham & Gloucester, Newcastle, Yorkshire Building Society and Woolwich, allow parents to count their savings against interest being charged on a mortgage held by a child. This can reduce the child's monthly mortgage repayments.

Alternatively parents can act as guarantors on their child’s mortgage, effectively underwriting the child’s debt. Lenders will assess this on a case by case basis looking at the parent’s income and their own mortgage and debt liabilities.