Splashing the cash
The Bank of Mum and Dad paid out an eye-watering £9 billion in 2022 in gifts and loans according to Savills with around 170,000 first-time buyers benefiting from family assistance. Asking parents to contribute towards a deposit so you borrow less, and have a lower loan to value (LTV), means you can access a lower interest rate. If your parents are able to gift you a 5% deposit of the purchase price, Weston Homes can match it providing a further 5% meaning your overall LTV is 90%. Taking out a longer-term mortgage of between 35-40 years will also make repayments more affordable. This term can be reduced later when you can afford to make higher payments, or you have built up equity in the property.
Interest earning gifts sweeten the deal
A growing number of lenders are giving family members the option to deposit cash up to 20% of the purchase price to act as a deposit in a savings account which pays interest. This can be withdrawn once a set number of years of repayments have been made, usually for 5 to 10 years or the mortgage reaches an 80% LTV. Savings can also be gifted in an off-set mortgage account where interest is paid on the difference between the total value of the mortgage and the savings in the account at any one time, so the bigger the gift the lower the repayment. However, the gifter won’t earn interest on the deposit and they can withdraw their money at any time at which point you will no longer benefit.
Get a generational booster
Schemes like Generation Home offer Income Boosters. This is where an individual (or couple) can have up to six family members as their income booster. The boosters can choose to contribute a set amount each month or be responsible for the payments if they are missed. This can help maximise the amount of lending available to you. The scheme also offers Deposit Boosters, who do not need to be related to you. They can gift the money or choose to invest it and get it back like an equity stake. Only the people buying the property go on the deeds, so stamp duty is not affected for the boosters.
Consider a lifetime lifeline
Parents aged over 55 can consider a lifetime mortgage which is a type of equity release scheme to help you buy a property. A long-term loan is secured against their home if there are no other debts secured against it. When their property is eventually sold, when they die or go into long-term care, the loan is repaid out of the remaining equity. Before this, they won’t have to make any repayments on the loan as the interest is added to the debt and charged on an increasing sum; most lifetime mortgages have a fixed interest rate. Make sure the lender is a member of the Equity Release Council.
Using property as security
A parent or family member can offer equity usually up to 20% of the value of the property you are buying, by agreeing to a legal charge on their own property as security. This means their property cannot be sold without this “loan” being repaid. Once again this will help to reduce monthly payments by accessing a lower interest rate and it could enable you to buy a bigger home now and avoid moving again later.
Not to be missed tax savings
Parents can gift up to £3,000 every year each as well as carrying forward unused exemptions from the previous year without you having to pay inheritance tax. If they die seven or more years after making a gift, then no inheritance tax is payable. As an added incentive, first-time buyers pay zero stamp duty on the first £425,000 on homes up to £625,000 until March 31, 2025, so this is a short-term welcome saving.
The information contained in this article was correct at the time of publishing and may be subject to change. Speak to an independent mortgage advisor for professional advice on your individual circumstances.
