10 April 2017

Help your kids into a home of their own

Today, the average first-time home buyer in the UK looks very different from the buyers of yesteryear. An average Nationwide first time buyer is now 32 years old, has an average annual salary of £44,000, and an average home price of £200,000.

Unfortunately, the average income in the UK isn't even close to £44,000 – it's £27,0001. So it's no surprise to hear that the Bank of Mum & Dad is doing brisk business these days. 

Research from Legal & General showed that last year, family and friends helped 305,900 loved ones to buy their first home. And parents helped finance a quarter of all UK mortgages in 2016, giving an average of £17,500 towards the price of a new home.

Over three-quarters of these"BoMaD" house purchases – 256,400 of them – were helped by parents, 22,500 by grandparents and another 27,000 by other family members and friends. As they say, it takes a village.

So how can parents help their first-time buyer children financially, even if they don't already have the cash to spare? There are several options, including our new Family Deposit Mortgage.

Finding money to help your kids buy their first home

If your kids are saving to get on the property ladder and you’ve decided to give them a helping hand financially, you may be thinking about the best way to free up some of your assets. Some parents will have savings that they can dip into, but that’s not a possibility for everyone. Another option is to borrow money against your property.

You could...

  • Get an advance on your current mortgage. If you've a Nationwide mortgage, you could borrow money against your property through our Family Deposit Mortgage range. It lets you borrow money against your home at a preferential rate, to gift to someone in your family who’s buying a home with a Nationwide mortgage (loan to value restrictions apply)
  • Remortgage your home and increase your borrowing. Again, you could do this to raise a deposit by moving from your current mortgage provider to Nationwide's Family Deposit Mortgage and simultaneously raise additional funds
  • Downsize into a smaller home for yourself, using the funds gained from selling your property to help buy your children's new home.

To gift or lend?

The findings from Legal & General’s research revealed that 57% of family mortgage contributions are gifts with no strings attached, and 18% are loans with no interest. But with so many demands on our budgets, this just isn't possible for every parent.

Instead, you could...

  • Loan the money and charge interest
  • Plan the money to be paid back when/if the property is sold on
  • Have a “deed of trust" drawn up by a solicitor when the deposit money is given. This sets out how much you've contributed and how you will get it back when the property is sold by your children in the future
  • If you charge interest on your loan, consider setting up a formal repayment schedule using a solicitor's “promissory note".

Just remember...

  • Your children shouldn't have to pay income tax on any money you give them, but it might affect their eligibility for some means-tested benefits
  • Some mortgage providers won’t allow you to lend the money for a family member’s deposit and will need a letter from the parents confirming that the money doesn’t need to be repaid. If you take out the Family Deposit Mortgage the funds must be wholly gifted and can’t be loaned.

Other ways to help (that aren't cash)

Money isn't the only thing you can offer your children. For example, certain kinds of mortgage allow you to act as a guarantor. This will boost their chances of being able to secure a home loan.

Guarantor mortgages can take into account your income as well as your child's, which could increase how much they're able to borrow. Look at these agreements carefully, as you'll have to guarantee their repayments. If they fail to make them, you'll ultimately be the one footing the bill.

You could also suggest that your son or daughter move back home rent-free or on a low rent to help them save up for the deposit. If you have a good relationship, it could be a great reason to spend more time with them as well as help them get a foot on the property ladder.

Take some time to think it over

Don't rush into a decision. With all the ways you could help your child on their journey to becoming a homeowner, it's a good idea to spend some time researching the options. Weigh the potential risks and benefits, and talk it over with your son or daughter about what they feel suits their needs.

Whether you already have a Nationwide mortgage or you're planning on moving your mortgage to us, a Nationwide Family Deposit Mortgage lets you borrow money against your home at a preferential rate to gift to your family towards their Nationwide mortgage. Terms and conditions apply.

Find out more about Family Deposit Mortgages here

All mortgages are subject to underwriting and criteria. UK residents, aged 18+. 


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