If you’re keen to support your son or daughter to buy their first home, then this guide, put together with Post Office Mortgages, provided by Bank of Ireland UK, will help...
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With Post Office Mortgages finding that saving for a deposit remains the biggest barrier for 43%* of wannabe first-time buyers, many millennials are turning to the ‘Bank of Mum and Dad’.
And as the parent of a child intent on realising dreams of owning their first home, you’ll naturally want to do all you can to help.
So what’s the best way to help your child save for a deposit and take that first step on to the ladder? Our nine-point guide, below, is here to help.
1. Offer practical advice
If you’re hoping to help your child take that first step, then one of the best ways you can support them is by encouraging a positive ‘can-do’ mind-set.
Urge them to become financially savvy by talking to them about budgeting carefully, reviewing their outgoings to see where they can make savings, and being disciplined about building a nest egg.
If you are going to help your offspring get on to the property ladder – with a loan, for example – one of the most important things you need to do is talk about it to one another.
Being open about money is not easy – even when speaking to loved ones – but communication is key, and the guidance in the Post Office’s free Bank of Mum & Dad Conversations Guide can be a great start.
2. Get them to move back in with you
A simple way to help an aspiring first-time buyer is by getting them to move back in with you for a while. It may mean sacrificing some independence, but will amount to a big saving on their rent and other bills.
3. Rent in a house share
Suggest that your son or daughter rent an affordable room in a house share with fellow tenants they trust. This usually works out much cheaper than renting on their own.
4. Start budgeting
Encourage your child to get into a serious savings habit by sitting together to plan a month’s budget. The savings that can be made by stripping back on non-essentials are often eye-opening.
5. Help your child get the best rates on savings
Shop around together for the best savings rates and short to medium term investment opportunities to ensure their money is working as hard as possible. You could make it more fun by challenging one another to find higher savings rates. But always make sure you read the small print for any catches.
6. Give a gift
One of the easiest ways to give your child enough money for a decent deposit is with a gift or a loan.
Post Office Mortgages research shows that the average parental gift to millennial buyers is £29,132 compared to the average parental loan of £24,347**.
If you are contemplating offering a gift, understand that a gifted deposit must come with no obligation to repay the money.
Also be aware that a mortgage lender will want proof that the money is a gift – and may require you to sign a declaration saying you don’t want the money back, and will have no interest in the property.
In addition, while there are no immediate tax implications, any gift you give to your children could be subject to inheritance tax (IHT) if you die within seven years of giving it.
It may make sense to seek professional advice and the guidance in the Post Office’s free Bank of Mum & Dad Conversations Guide will also prove helpful.
7. Give a loan
If you decide to offer your child a loan, it’s important to formalise the agreement.
Further findings from the Post Office reveal that one in six first-time buyers are funding their home purchase from a parental loan, yet 87%** have no proper agreement in place.
As a parent, you need to sit with your child and draw up an agreed regular repayment plan.
If you need the money back in a certain timeframe, define this from the outset to avoid financial difficulty and strain on the relationship.
You should also put a ‘letter of intent’ or ‘deed of gift’ in place – and consider consulting a third party, such as a solicitor.
8. Consider the Post Office Family Link™ mortgage, provided by Bank of Ireland UK
If you want to provide support for a child who can afford to repay a mortgage – but who cannot save enough for a deposit – take a look at the Post Office Family Link™.
It works as follows. Your son or daughter can take out a 90% LTV mortgage from the Post Office with the other 10% raised as a mortgage secured against your home – or the home of another close relative.
For the first five years, buyers make two separate payments: one goes towards the assistor’s mortgage (which is interest-free), and one goes towards their own mortgage, where interest rates will apply.
- the first-time buyer mortgage is 90% LTV.
- the maximum loan size is £500,000.
- your home must be mortgage free.
- you use the value / equity in your home – rather than your cash or savings – to help your child.
- the only upfront cost is your solicitor and legal fees.
- the assistor must take independent legal advice.
9. Check out Government schemes on offer to help first time buyers
As a parent, it’s worth checking out all the help available to those trying to take the first step.
Help to Buy ISA
A first timer can start one of these tax-free savings schemes with £1,200 and can then save £200 a month after that. The Government will top up savings by 25%, and will pay a maximum bonus of £3,000 once £12,000 has been saved into an account. These ISAs will eventually be replaced by Lifetime ISAs.
The LISA also gives the same 25% Government bonus, but allows first timers to deposit a maximum of £4,000 a year into the account. This means £1,000 for those who save the full £4,000. Buyers must be aged under 40 to qualify. They should also be aware that if they want to withdraw the funds for something other than a first home, they face a 25% charge.
Help to Buy: Equity Loan
With this scheme, if a buyer raises a 5% deposit, the Government will then lend up to 20% of the value of a property in England and Wales (15% in Scotland; 40% in London). The remaining 75% can be topped up with a mortgage. There is no interest to pay on the 20% loan for the first five years. This scheme is only available on new-build properties worth less than £600,000 in England, £300,000 in Wales and £200,000 in Scotland.
With this scheme, the first-time buyer purchases a share of a new or existing home – typically between 25% and 75%. They then pay rent on the remaining share, so a smaller deposit is required. The buyer has the option to buy a bigger share in the property at a later date as their income increases. To qualify for the scheme in England, your household can earn up to £80,000 a year, or £90,000 in London.
Sources: *Opinium Research. Online survey of 1,002 recent first-time buyers (purchased property past 24 months) aged 18+ (02 June to 09 June 2017). **Post Office research. mynewsdesk.com
*This post is in collaboration with Post Office. Subject to status and lending criteria. Your Home may be repossessed if you do not keep up repayments on your mortgage. Post Office Family Link mortgage information accurate at date of publication, June 2019*
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.