With many young people struggling to get their foot on the housing ladder, a growing number are turning to parents or family members for financial help. Tina Templeman, our Rottingdean Branch Director, gives her thoughts on the so-called ‘Bank of Mum and Dad’. According to research by Legal and General, the ‘Bank of Mum and Dad’ was set to lend more than £6.5bn to help family members buy in 2017, which would put it amongst the top 10 lenders in the UK. Legal and General’s 2017 report shows that, in the South East, a reported 21% of home owners received assistance from parental figures.
Joint Borrower Sole Proprietor mortgages
One way that parents are helping their children to buy a home is known as a Joint Borrower Sole Proprietor (JBSP) mortgage, which allows family members to ‘boost’ loved one(s) borrowing capabilities by utilising their income on the mortgage application to the mortgage lender – but not as an owner of the property. The applicant(s) remain the sole owner of the property. However, it is advisable when buying with a family member to check the Stamp Duty Calculator to ensure you aren’t eligible for the additional stamp duty surcharge of 3% for owning additional property. You should seek advice from your solicitor or conveyancer for advice and confirmation of this.
Other mortgages available
The Post Office recently launched its ‘Family Link’ mortgage for parents to help their children onto the property ladder. This scheme lets first-time buyers use the home of a close relative as collateral against their own house purchase. First-time buyers can borrow 100% of a property’s value by placing mortgages on two properties – a 90% mortgage on the home to be purchased and a 10% loan against the parental home. Our friends at Sussex Mortgage Services are happy to guide you on what will suit your particular needs. Paul Little, Director at Sussex Mortgage Services, commented: “In recent years we have seen more and more buyers having to turn to their parents to assist them with the purchase of their first or even second home. The Post Office ‘Family Link’ mortgage product is another fantastic way for the parents to be able to do that. This might also appeal to parents who want to help their children to buy a property, but who don’t want to hand over a large amount of their hard earned savings.” There are also many similar mortgage schemes like this available from various lenders in the market – Nationwide Building Society, for example, offer the ‘Family Deposit Mortgage’, Barclays Bank offer the ‘Springboard’ mortgage and Family Building Society the ‘Family Offset’ mortgage, which is why it is very important to seek advice from a qualified independent mortgage broker to ensure you get the appropriate and most competitive product that meets your needs.
At Mishon Mackay, we have also seen an increase in clients coming to us to discuss the sale of large family homes in order for parents to downsize and release equity to invest in their child’s home by means of assisting with their deposit. It is common to see parents choosing to give family members part of their inheritance money, to ensure they get on the housing ladder sooner rather than later. It’s a very practical way for older generations to help younger relatives who are struggling to save for a deposit , and also means they get to see them enjoy it. However, sometimes it may not be viable for willing parents to sell their family home to assist their children, therefore the alternative may be to release some monies by means of a ‘Lifetime Mortgage’. Again, our experts at Sussex Mortgage Services would be happy to advise you on these types of mortgages to ensure that it is the right and appropriate option for you.
Multi-generational living arrangements
Other ways in which we are seeing assistance from older relatives is through multi-generational living arrangements. According to a Cambridge Centre for Housing & Planning Research report, parents, children and grandchildren will often sell their houses to pool their resources and funds to buy a house together. This means they are saving on running costs and stamp duty, whilst also future-proofing for the old age of elderly relatives. This, of course, comes with its own challenges. It can often be difficult to find a home that ticks enough of the boxes for everyone who will be living there. It can sometimes mean much more of a compromise, but the long-term benefits and the likelihood of not having to move again any time soon mean this is fast becoming a popular option. We are sure the appeal of live-in babysitters and more people to cook dinner plays a part too!
It is also common – certainly in central Brighton areas – for parents to invest in a property themselves as a buy-to-let investment. This allows their child to rent out additional rooms to colleagues, students and professional sharers to cover the costs, thus allowing the child to live rent-free with greater feasibility to save money to buy their own property. This kind of living arrangement is subject to compliance under HMO licencing rules – you can read our blog on what landlords need to know here.
What is clear is that parents and children are having to find innovative ways to get the younger generation onto the housing ladder in the current property landscape.