Mortgage blog: How a joint mortgage can help your children buy a property
The Daily Telegraph recently reported that "record numbers of buyers aged 20-45 are turning to their parents - or grandparents - for help" in buying a property. The Office for National Statistics says that first-time buyers paid £192,000 on average for a home in February, up by 10.5% from a year ago - meaning many properties are now out of your child's financial reach.
With many lenders including RBS and NatWest having withdrawn their ‘guarantor' mortgage products this year, helping your child onto the housing ladder can be tough. However, one option is to consider a ‘joint mortgage'. We look at how this works and the pros and cons here.
Joint mortgage can increase your child's borrowing potential
When you take out a mortgage in joint names - for example yourself and your child - it means that both your incomes will be taken into account when determining how much you can borrow. It means that your child will be able to take out a bigger mortgage than they would have been able to based on their own earnings.
If you already have a mortgage, the lender will take your current home loan repayments into account when calculating how much they will lend to you. They will also take into account any other financial commitments either you or your child has, for example personal loans, credit cards and car repayments.
Keith Osborne, editor of Whathouse.co.uk, says: "A joint mortgage can be a sensible option if your son or daughter expects to be earning a significantly higher sum in the next few years. If they are a young professional in a job where their salary is likely to rise quickly to a level when they can afford the mortgage in their own right then this type of arrangement can give them a helping hand."
You should bear in mind that, as a joint mortgage holder, you are both equally liable for the repayments. So, if your child doesn't make a monthly payment, you will be liable for the full amount. And, in most cases you will both have some ownership of the property which may have capital gains tax implications further down the line.
Osborne adds: "Most lenders will let you take out a joint mortgage on their standard products but some have particular deals available. For example, Coventry Building Society's Step-Up mortgage is for first-time buyers and lets family members be removed from the mortgage once the main borrower can afford the loan on their own."
Barclays' Family Affordability Plan is a similar scheme and is available on all of its mortgages for first-time buyers and home movers. Parents or grandparents can be named on the mortgage but do not have to be co-owners of the property, which avoids any capital gains tax liabilities.
Click here to find out more about how Whathouse.co.uk can help you find the right mortgage.