Your parents could help you buy your first home, by lending the deposit, being your guarantor or offsetting their savings against your first time buyer mortgage with lenders like Lloyds Bank…
Need a leg up onto the property ladder? Get in your parents’ good books – as of 2016, first time buyers can expect to pay £200,000 for an average house in Britain or over a whopping £400,000 in London. So, improve your credit score to convince lenders that you’ll keep up with your mortgage repayments. Budget for extra costs, such as a potential lenders’ fee of 1,000, a non-refundable booking fee of several hundred pounds, as well as survey and conveyance costs to make the property yours by law. And finally, bring your parents onside to help you out, like this…
1. Ask your parents to gift money
Your parents can give you £3,000 a year without causing Inheritance Tax problems. If their estate is worth more than £425,000, and they give you more than £3,000, you’ll have to pay Inheritance Tax if they tragically pass away within seven years of helping you buy your first home. Lloyds Bank say that parents spend £8 billion a year helping their children to buy a home, and if yours decide to cover your deposit, ask them to also sign a statement saying you don’t have to pay them back. That’ll tell your mortgage lender that you don’t have an outstanding loan.
If you’re sensible, you’ll also ask your parents to sign a ‘Deed of Trust’ drawn up by your solicitor to explain how the equity in your house should be divided if you split up with your partner. That way, the money your parents donated should go back to you.
Call to ask HMRC about Inheritance Tax and gifting money to first time home buyers.
2. Agree a loan with your parents
The average first time home buyer has to pay a deposit up to £28,200. Why not ask your parents for down payment assistance? When they give you a loan, get everything in writing – agree interest and a repayment schedule, as well as what happens if one of you dies or your parents need their money back.
When everyone involved has signed it, tell your mortgage lender about the loan from your parents, because it effects the affordability cost of your first time mortgage – potentially lowering the amount you get.
3. Team up for a joint mortgage or make them guarantors of your first time mortgage
Your parents can help you to borrow even more – as your guarantor, their income is considered when the bank agrees your first mortgage deal. Of course, your parents will then have to cover your mortgage payments if you don’t.
Alternatively, your parents will legally own a share of your home with a joint mortgage, but you’ll both have to make the repayments – lightening the load on you.
4. Search for a first time buyer mortgage that your parents can help with
Plenty of first time home buyer programs out there, and we’ve rounded up the best for you right here…
Barclays – deposit free first time buyer mortgage
Forget putting down a deposit worth 5% of the house price. Barclays is offering a 100% mortgage – the first major bank to do so, recently. You can loan up to £500,000 with and the mortgage rate stays at 2.99% for three years, although you can’t buy a new build property with it.
Your parents simply have to pay a 10% deposit into Barclays’ Helpful Start Account and leave it there for three years, earning 1.5% interest annually. Keep making your mortgage repayments and they’ll get their savings back after three years. Miss a payment, Barclays can keep your parents’ money for longer.
Yorkshire Building Society – Offset Plus mortgage
Take out an Offset Plus mortgage from Yorkshire Building Society. And ask your friends or family to offset their savings against your debt to lower the amount of interest you’re charged – saving you precious pennies by reducing the long term cost of your mortgage.
Your parents, for example, can link their savings to your first time buyer mortgage. They won’t get interest on their savings, but the money remains in their name, not yours, and they can dip into the account whenever they like. But when they do spend their savings, your mortgage rate will go up.
Nationwide Family Deposit Mortgage – anyone in your family can help you
Step-parents, grandparents, uncles and aunts or siblings. It’s not just your parents who can help you with your first time mortgage from Nationwide, any family member can – so long as you both have a Nationwide mortgage. Otherwise, your donor must switch to Nationwide from their current lender.
See, the Nationwide Family Deposit Mortgage lets your family member mortgage up to 80% of their house value to use as a deposit for your first home. They don’t even have to take out an equity release, personal loan or second mortgage. But their home is at risk if you don’t keep up with your repayments.
Call Nationwide’s customer service number, today for advice on mortgage rates for first time home buyers or switching your current mortgage lender.
Lloyds Bank – Lend a Hand mortgage
Between yourself and a friend or family member, you’ll need to cover 25% of the property value with Lloyds Bank’s Lend a Hand mortgage for first time home buyers. You can borrow up to £350,000 for your first home.
Pay a 5% deposit, for example, and your helper must put savings worth 20% into a Lloyds Bank account for 3.5 years. They’ll still earn a fixed annual interest rate, but they won’t be able to touch a penny. Again, when you pay 15% deposit, your lender would cover 10% and so on.
Lloyd’s first time mortgage rate is fixed at 4.2% for three years. But you might be offered a better rate if you also have a Lloyds Bank current account.
Call to ask Lloyds Bank customer service team about opening a current account or applying for your first time mortgage today.