How can I help my child buy a house?

The bank of mum and dad helps more than half of first-time buyers, according to financial services firm Legal & General.

If your child has an amount saved up in a Lifetime ISA (LISA), they can still benefit from the LISA bonus whether you are on the mortgage or not.

There are a few ways you can help your child when it comes to getting on the property ladder. We summarise your options below. 

Government help for first-time buyers

LISAs are designed to help people save towards a first home – as long as the property costs no more than £450,000 – or retirement.

For every £1 your child saves in a Lifetime ISA, the government gives an extra 25p.

Savers can pay in up to £4,000 a year and the government will add a maximum of £1,000 a year.

Should I get a pension or Lifetime ISA?

What you need to know about joint mortgages and stamp duty

If your child had £12,000 in their LISA, for example, the bonus would amount to £3,000 – not to be sniffed at.

However, mortgage expert James Brocklebank at the financial adviser Open Money, says there are a couple of issues to consider.

“If a parent were to go on the mortgage with their child, the child would not benefit from the stamp duty relief given to first-time buyers.

“That’s definitely worth bearing in mind as it could add a lot more to the total cost of buying the house.”

First-time buyers pay no stamp duty on properties worth up to £425,000, and 5% on any part of the property purchase price between £425,001 and £625,000. 

Second, Brocklebank points out that if one of the parents were to go on the mortgage, it might limit the length of the mortgage term – as this will be based on the age of the eldest applicant.

The maximum age varies a lot between lenders, so it’s worth checking with a mortgage broker about this.

Shared ownership schemes

One option is to look at shared ownership schemes. 

With shared ownership, people can buy a share of between 25% and 75% of a property – and pay a subsidised rent on the rest to a housing association.

At a later date, you can buy a greater share of the property – known as “staircasing”. The scheme is only available to households earning no more than £80,000 a year (£90,000 in London),

You should research the pros and cons thoroughly.

Some experts believe shared ownership is the perfect helping hand for would-be first-time buyers who fear that purchasing their own home is out of reach. But others describe it as complicated and expensive. 

Gifting money for a house deposit

Another option would be to give your child some money, through a gifted house deposit.

We can all pass on £3,000 each year without the taxman raising an eyebrow in terms of any future inheritance tax implications.

If a parent would want to give their child more than this and combine it with a “100% mortgage”, that could also be an option. We explain more below.

Family springboard mortgages

With 100% mortgages, a buyer does not need to put down a deposit of their own.

Instead, a relative or friend typically provides “security” for the loan – about 10%-20% of the property’s value. The cash is held in a long-term savings account. 

Barclays calls it a “family springboard mortgage”.

If you took out a product like this, you would put down 10% of the property’s price in a five-year holding account. So if your child were to take out a mortgage for £240,000, your “deposit” would be £24,000.

This money acts as security while earning interest for you. After five years the money is returned – as long as your child hasn’t missed any mortgage payments. 

This product could potentially ensure your child fully benefits from his LISA bonus and the first-time buyer advantage of stamp duty exemption.

The Barclays Springboard mortgage with 0% deposit needed currently has an interest rate of 5.89%, and no fee. If you can put down 5% deposit, the fee falls to 5.84%.

You would have to do the maths on this and have enough savings that you are happy to provide this deposit boost and tie up the money for five years. 

Downside of offset mortgage

The one downside of 100% mortgages is that there isn’t much choice.

There are only a few lenders in the market. Along with Barclays, others include Skipton Building Society, Tipton & Coseley Building Society and Buckinghamshire Building Society, which call them ‘Family Assist’ mortgages.

Remember that the best mortgages for first time buyers will only be offered to the strongest applicants. This takes into account credit score, income and outgoings. 

Don’t forget to factor all the costs of buying property – not just the deposit and any stamp duty – into any calculations. We have more on this in What are the hidden costs of buying a house? 

Other ways to help your child buy a home

Release the equity in your home. Also called a lifetime mortgage, equity release allows you to cash in some of the value of your home while you still live in the property. You must be aged 55 and above for this type of loan.

Family offset mortgage. An offset mortgage allows you to use your cash savings against the mortgage debt. And some mortgage lenders allow parents to set their savings against their child’s mortgage debt.

Being a guarantor for a mortgage. Guarantor mortgages are commonly associated with helping first-time buyers get on the property ladder. They give the lender assurance that repayments would still be made if the buyer failed to do so, as the guarantor would have to cover the monthly loan repayments.

Got a question for our mentors? Drop us an email and we’ll get it answered.