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house deposit

If you are looking for ways to help your children buy a property, this blog will navigate you to all the available options.

The high cost, hard checks on your affordability, and large house deposit are a few reasons why many property buyers struggle to climb their first chattels ladder. The most reliable bank for any first-time buyer is their mom & dad depository.

The rise in the price of properties makes it difficult for young homebuyers to take a step ahead in this route. This arises the need for assistance from their parents. Family and friends resource almost 20% of down payments in home purchases.

Being capable of helping your grown kids purchase their first house is a blessing for every parent. If you are looking for ways to help your kids buy their first property, then be assured that there are various routes to make it happen quickly.

This includes helping them with a house deposit, being a guarantor for their house mortgage, or applying for a home loan together.

In this blog, we will navigate you to several routes to help your children for making a smooth property purchase.

A Guide to help your grown Children to buy their First Property

Buying a house is the most significant milestone your kids will achieve in their life. If you help them make this purchase, it will be the biggest present or caregiving you will provide to your children.

Parents helping their kids to buy property is something that has been going on for many generations. Many opt for 12-month payday loans to fund this aid. Even the grandparents come forward to help their grandchildren purchase their first house.

Following are the ways to help your grown children to make their first property purchase.

  • Gifting or Lending a House Deposit

The most important thing which is needed to purchase a house is the down payment. A buyer needs to deposit at least 5% of the total property value as its down payment, and the balance amount is paid through a mortgage.

But in the year 2020, when the pandemic struck the world, many buyers withdrew their mortgage requests for purchasing houses. As a result, every home buyer is now required to pay at least 15% to secure a loan quickly.

You can gift or lend a sum of house deposit to help your children buy their first house. Keep in mind that your kid’s mortgage lender might require a copy of proof that this money came from your end. If you are gifting the money, you will provide a written letter stating that it won’t be taken back.

On the other hand, if you are loaning this money, you will also state this information to the moneylender as this will help them calculate your kid’s affordability. You will sign a declaration form stating that you have zero rights on the property

  • Gift Deposits

After the year 2020, when every sector got hit by the pandemic wave, many changes have happened in the real-estate sector.

There is now a limit on funds that comes from parents to finance their kid’s property. Almost 90% of mortgage lenders follow this rule that only 25% of house deposits can be gifted from parents. The rest of the money must be paid by the loan applicants only.

Furthermore, many lenders have not formally limited the financial help from parents as still, people have helped their children with 1000 pound loans.

But you have to check this information with the home broker. This will help you in finding the current deposit criteria.

  • Mortgage Options

If you don’t have enough savings to help your children with money, then you can opt for the below financing options.

  • Guarantor Loan

You can put your property as collateral security to obtain this loan. But the biggest drawback which will come with this loan is that if your child fails with repayments, you will be responsible for paying it.

Also, these loans are offered at a high rate of interest than others.

  • Joint Loan

A joint mortgage will have both you and your child’s name on the agreement and deeds. You will be jointly responsible for the monthly instalments. Also, you will have to pay stamp duty fees for owning a second property if you already have a house.

  • JBSP Loan

JBSP stands for joint borrower sole proprietor, similar to a joint mortgage but has one big difference. You and your child’s name will be present in the agreement, but only your kid’s name will be on the property papers. Here you can avoid paying for stamp duty.

  • Remortgaging

If you already have a mortgage on your own house, you can consider the remortgaging option to free up some money for a large sum.

Keep in mind if you take additional borrowings, you would increase your current loan tenure or surge the size of monthly instalments.

Before opting for a remortgage, it is recommended to analyze your current financial situation. An increase in monthly repayments could drastically affect your retirement plans and standard of living.

Bonus tips for parents who are helping their children with a house deposit for their first property

If you want to ensure that your money is not wasted, you will have to sustain control. You need to check your own affordability before giving monetary help to your children.

Here are some bonus tips for you to help your children while avoiding any financial difficulty.

  • Ask experts: There are numerous options for securing a mortgage in the market. Consider talking to an experienced broker to know all the options.
  • Revise your will: If you have any share in your child’s property, update the information regarding what will be its future after your death.
  • Be clear: You need to inform your children whether you gift or loan the money. It might be awkward, but things will be easier in the future.
  • Be honest: You need to be honest with your moneylender about your finances. Don’t amplify your earnings to secure a large loan amount.
  • Future interest: Check if you will be able to afford the monthly repayments with the rise in interest rate in the future.

Final Thoughts

When your children reach a phase to kick start life and achieve their first milestone, you would want to help them make that biggest jump. If you are also thinking of helping your children make a house purchase, you are not alone in this.

Due to the rise in cost, difficulty securing a loan, and low savings. It gets really tough to buy a property. Your children will obviously rely on you for financial help to make their home purchase easy.

There are various ways to help your children in buying their first property. You can give them needed advice, spend time researching, surprise them with a big house deposit, cosign the mortgage, or apply for a home loan together.

Helping your child is good but avoids shaking your retirement funds or taking debts for arranging funds. Before gifting or lending money, you need to check your affordability and current financial situation.

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