4 things parents can do to help children secure a mortgage and financial security

Posted on

The route to homeownership is filled with challenges and securing a mortgage is becoming increasingly difficult for aspiring first-time buyers. As a parent, you may want to provide support and there are several different options to consider.

House prices have been growing at a pace that outstrips wage growth. According to the Halifax House Price Index, in April 2021, the average house price was £258,204. This followed an 8.2% increase in just a year. While this is good news if you’re hoping to sell your home, the huge increases present two challenges for those hoping to get on the housing ladder.

  1. Saving a deposit. In most cases, a first-time buyer will need a 5 – 10% deposit. As house prices rise, so does the amount needed to act as a deposit. Saving this sum is the first challenge many first-time buyers run into. Separate Halifax research found the average first-time buyer now puts down £58,986 as a deposit.
  2. Proving affordability. Even with a sizeable deposit, first-time buyers can struggle to secure the mortgage they need to purchase a home, especially if they’re living in expensive areas. The affordability checks banks carry out have become more stringent and some aspiring homeowners can struggle to find a property that matches their needs and is within budget.

As a parent, you may want to offer a helping hand if your child is ready to buy their first home, and there’s more than one way you can do it.

1. Provide a lump sum to use as a deposit

Around half of all house purchases among the under-35s now rely on a financial helping hand from parents, according to Legal and General research. Without a financial gift from parents, first-time buyers estimated their homebuying plans would have been delayed by four years.

On average, parents are handing over £19,000. In 2020 alone, it’s estimated that parents contributed £1.36 billion to support housing purchases. If you’re able to do so, providing a lump sum, either as a gift or loan, can help your child reach homeownership goals sooner.

2. Use your savings for an offset mortgage

An offset mortgage links a mortgage to a savings account. Depending on the type of account selected, your savings can act as a deposit or reduce the cost of borrowing for your child while remaining in your control and earning interest. In some cases, your savings will be inaccessible for a set time.

There are now offset mortgages designed for children and parents, sometimes known as a “family mortgage”. Some of these allow your savings to act as a deposit, meaning your child can take out a 100% mortgage. However, if your child defaulted on payments, your savings could be used.

3. Act as a guarantor for a mortgage

If your child is struggling to secure a traditional mortgage, a guarantor mortgage may be appropriate. This is where a guarantor takes on some of the risks of the mortgage. This will usually mean your own home or savings are used as security against the loan. If your child misses mortgage repayments, your savings or home could be at risk.

A guarantor mortgage can mean your child can put down a lower deposit, borrow more, or secure a mortgage if they have a poor credit rating.

4. Take out a joint mortgage with them

By being on the mortgage, banks may consider your income when conducting an affordability check. So, your child may be able to borrow more to purchase a home. However, keep in mind that you will be responsible for repayments and it could affect your ability to secure other forms of borrowing.

If you already own a home, you could also be liable for Stamp Duty. A joint borrower, sole proprietor mortgage arrangement can provide a solution to this.

The importance of taking advice before lending a helping hand

While it’s natural to want to lend a helping hand to your child when they’re preparing to buy a home, it’s important to take advice first.

Whichever option you’re considering, financial advice can help you understand the short-, medium-, and long-term consequences. Would providing a gift to act as a deposit mean you risk running out of money in your later years? Or would using an offset mortgage that locks away savings mean you can’t reach short-term goals? In many cases, parents are in a position to offer support but seeking advice first means you can do so with complete confidence.

In some cases, taking professional legal advice is also advisable. For instance, if you’re providing a deposit in the form of a loan, legal advice can make sure you’re all on the same page and protect your finances.

Finally, a mortgage broker can help you and your child find the right mortgage deal and offer advice on the different options, whether a traditional mortgage is suitable or a guarantor mortgage makes sense.

If you have any questions about helping your child on to the property ladder, please call us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

We aim to keep our clients up to date on interesting and relevant financial news.

You can sign-up to receive our monthly newsletter by email, even if you’re not yet a client. Sign-up using the form below.

Client testimonials

I have always found Black Swan to be caring and understanding of my quirky lifestyle. I always feel they try to get me the best returns while respecting my current needs.

Sally Muir

A client since 2011

We would be very happy to recommend the support and service we receive.

Valerie Locks

A client since 2010

I have always been completely useless regarding finance - thankfully our financial adviser is not! I've retired with far more than I ever expected and investments continue to grow safely. So - thank you!

Bernadette Jane Warner

A client since 2000

Very happy with the professional service I have received and feel a lot happier now with my finances put in order.

Martin Field

A client since 2011

Julie Cooper was recommended to me by a work colleague. She has been very helpful, professional and has explained everything well. I would definitely recommend her services to anyone else who are interested in a financial review.

Steven Rooke

A client since 2018

…Service has been first class.

Hugh Fells

A client since 2012

My face to face meetings with Rob Young and Jessica Lyons have always been very open and understandable. My questions have been answered clearly and I have left feeling that my financial matters are in good hands.

Sandra Jack

A client since 2000

[A] safe pair of hands in a complex financial world.

Gary Middlehurst

A client since 2003

A reliable company with good communication skills and good knowledge of the financial markets.

Alan Evetts

A client since 2014

Maureen Pembridge is a long-time trusted advisor to our family. The market might fluctuate but her attention to detail is consistent.

Linda Burnard

A client since 2000

I am pleased to recommend Julie as a trustworthy financial advisor. She explains financial jargon in plain language, and always listens carefully to my particular financial needs and has helped me make the best of my savings.

Carolann Samuels

A client since 2010

I have always been satisfied with the way that Black Swan has handled my account. And I have always found the staff very helpful whenever I need to call the office.

Robert Anthony Matthews

A client since 2012

An excellent personal service from a person I know and trust.

Michael Dalton

A client since 2010

I am getting a very good services from Black Swan, they have got my investments sorted out which was in a bit of a mess.

Roy Jakens

A client since 2012

A good, efficient team providing clear ideas to shape a winning strategy.

Adrian Michael Levenstein

A client since 2011

Black Swan is a company to be trusted, with friendly staff and professional advisors.

David Brian Jennings

A client since 2017

I have been with Black Swan for many years. I have never wished to change anything. They give a good straight forward service.

Martin Barrett Brooks

A client since 2010

Andy Peters has been invaluable in firstly combining several pension pots and then giving excellent investment advice. It has given us a great deal of comfort to know that our financial affairs are in such good hands.

James Guillum Scott

A client since 2014

I find my financial advisor easy to talk to and feel that she understands my lifestyle. She is always available for help when I need her and explains in words that I can understand.

Margaret Ena Glasgow

A client since 2000

Andy is a first rate Director, excellent communicator and leader.

Ross Perry

A client since

Black Swan Financial Planning and Andrew in particular, are very clever at working out how risk averse we are, and coming up with solutions that we feel comfortable with. We are happy in the knowledge that we can continue to enjoy a comfortable retirement. Andrew Peters is a very, very friendly person who is great to chat to and easy to deal with. He explains things very clearly in layman’s terms, and if we still don’t understand, he explains it until we do!

Alan & Jane Dyer

Clients since 2012

We have always found Rob [Young] to be very approachable and knowledgeable. We have every confidence in the advice given and feel comfortable with the decisions we’ve made. There are certain opportunities that we wouldn’t have known about if Rob hadn’t brought them to light, which makes the advice good value for money as far as we’re concerned.

Peter & Pauline O’Halloran

Clients since 2013

Rob [Young] is extremely knowledgeable. I knew nothing about the different types of trusts which will not only secure my income in retirement, but also leave a legacy for my children. I’m glad that I sought his advice when I did.

Sarah Wilson

A client since 2015

I am extremely happy with the service afforded to me by the company and my adviser Julie Cooper.

Geoff Coxell

A client since 2010

My wife and myself have been dealing with Black Swan for a number of years. We have met with different representatives from the company over the years and have found all very helpful in their own way. We met with James [Anderson] a few years ago and found him very helpful and knowledgeable. He keeps in contact with us on a regular basis. We find the Company information very helpful and we feel very secure with our finances.

Andrew Kirchen

A client since 2015

I have always found my adviser to be easy to contact, very professional in his approach, yet friendly and understanding. I have a sense of an experienced company behind him, really on the ball financially and with good standards.

B McBean

A client since 2011

Partner with the most reliable and experienced team of advisers

Enter your details & we'll be in touch to discuss your needs.
Alternatively, contact us directly and speak to a member of the team.

    Subscribe to our newsletter