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Mortgages: smart ways to help your child on to the property ladder

The savings plus interest will be released as long as the mortgage payments have been kept up

September 25, 2013 | By:

Most first-time buyers now expect financial help from their parents. These banks' schemes allow you to help them buy while keeping your savings intact, reports Sheila Prophet

Mortages Couple in new home-620 Corbis 42-17717109

Help your beloved but don’t let them clean you out! Photo from Corbis

With newly released figures from Halifax showing that the average price of a flat in Britain has risen to £180,799 and the average deposit has climbed to £40,628, it is no wonder two-thirds of first-time buyers now expect to enlist their parents’ help.

Fortunately, mortgage lenders have recognised the increased role parents are playing in raising those deposits, and have come up with some innovative schemes that allow you to support your children’s first steps on to the property ladder while hanging on to your savings.

Lloyds: put security into a linked savings account

Lloyds Bank’s Lend a Hand mortgage, which has been running for four years, requires the buyer to provide a minimum deposit of five per cent with up to two helpers – usually parents – placing 20 per cent into a linked Lend a Hand savings account.

On an average flat, this would mean a lump sum of around £36,000. These savings are held as additional security on the mortgage by way of a legal charge, while earning an attractive interest rate of 2.7 per cent.

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The mortgage is fixed for three years, with the buyer able to access the lower rates available to those with 25 per cent deposits. This currently means a fixed rate of 3.64 per cent with no product fees, or 3.44 per cent if you have a current account with the bank.

The deal does rely to some extent on the property market continuing to rise, with the assumption that at the end of three years, the loan will be worth a smaller percentage of the overall price and the buyer will then be able to access a better rate without extra assistance.

For the helpers, meanwhile, the original savings plus interest are released after 42 months, so long as the loan has dropped to 90 per cent or less of the property’s value.

Barclays: give help and get your money back

The Lend a Hand mortgage was unique when it launched. This year, Barclays launched its version, the Family Springboard mortgage, after its research found that it was taking more than eight years for young people to save up enough money for deposits.

Head of mortgages at Barclays, Andy Gray, says: “We know it’s tough for people to get on the property ladder. That’s why we’ve been actively listening to home-buying dilemmas such as being stuck renting for the long term or moving back to the family to save for a deposit.

“While they want to help, many families can’t afford to give away lump sums. The Family Springboard mortgage gives them the best of both worlds: the family provide a financial boost initially but get their money back, while the child gets a foot on the property ladder by putting just five per cent down.”

The Barclays scheme follows the same principles as Lloyds’ but is more affordable for parents as it is based on a total deposit of only 15 per cent.

This means that while the homebuyer again has to raise a minimum five per cent deposit, the family members only need to provide a further ten per cent, which on an average flat would be around £18,000.

The mortgage is fixed for three years at 3.99 per cent, while the linked Helpful Start account offers interest at base rate (currently 0.5 per cent)  plus 1.5 per cent, equalling 2 per cent.

Again the deal lasts three years, and Barclays, which says the Family Springboard has proved extremely popular in its first nine months, promise that the savings plus interest will be released as long as the mortgage payments have been kept up.

Guarantor mortgages

These schemes are not the only options open to parents. There are a number of Guarantor mortgages available, such as the Co-operative Bank’s Parental Guarantor, which allows the buyer to borrow up to 4.25 times the guarantor’s income, as long as the guarantor is a close family relative under 65 with sufficient income.

Joint mortgages, including Market Harborough’s Family Shared Mortgage, allow parents and children to add their incomes together to increase the amount that can be borrowed.

Barclays’ Family Affordability Plan allows parents to add their incomes to their children’s as in a joint mortgage, but without adding their names to the property deeds, thus avoiding any potential problems over capital gains tax.

Barclays’ subsidiary Woolwich also offers this option, but says it is important to remember that buying a house together is a business deal – even within the closest families.

So the question changes. It’s no longer ‘would you bankroll your kids?’ – but ‘would you trust them?’