Four ways to help your children on to the property ladder
How the ‘Bank of Mum and Dad’ is more useful than ever
2 min read
It used to be tough for parents to see their children leave home. Now, it’s tough for them to see their kids stuck at home because they can’t afford the property they really want.
We all know the problem. Those who haven’t lived long enough to achieve strong salaries and sizeable savings may find the prospect of buying a property increasingly daunting – especially if they can’t be flexible on location. Only 41% of people aged 25-34 own the homes they live in, according to the government’s 2018-2019 English Housing Survey.
It’s not an issue that’s going to go away any time soon. As lockdown restrictions ease and the property market opens up, many first-time-buyers are considering how changes in their wages or prospective bonus could affect their ability to borrow. This is often where the so-called ‘Bank of Mum and Dad’ comes in to help with the deposits needed.
While coronavirus caused the market to hit ‘pause’, and we could see more price corrections this year, low interest rates and a relatively weak pound are likely to support the property market when it gets moving again.
Jessica Baker, from the Home Buying and Ownership team at Coutts, says, “This all makes parental support vital, and the ‘Bank of Mum and Dad’ one very important family business. Without the support of their parents, young people could be missing the ‘leg up’ they need to get the keys to their ideal first home and make the most of market opportunities.”
From one bank to another, we could help. Here are just four of the options we could support you with.
1) Guarantee their mortgage to help them borrow more
We could provide you with a guarantor mortgage – which is in your child’s name but guaranteed by you. Because your bank balance is bigger than theirs, it enables them to borrow more than they might have based on their own funds.
The property remains in their name but, despite your name not being on the mortgage, you’re still liable for the payments if your child can’t pay.
2) Use your savings to lower their mortgage payments
You might also want to consider our Offset Select Mortgage, which means you can use your multi-currency savings to lower the amount they pay on the mortgage every month, or shorten the time it takes to pay it off.
You still have instant access to your savings, but can use them to offset the mortgage balance your child is charged interest on. You can choose up to 10 multi-currency deposit accounts, so it could be a good way to put any cash you’re holding to good use.
3) Take out a joint mortgage, keep it in their name
Another way we could potentially help you support your family is through our Joint Borrower Sole Proprietor Mortgage. This enables you and your loved one to take out the mortgage together, but the property is only in their name. It helps you support them in a more structured way while still giving them some much-valued independence.
4) Invest your money now to help your children later
Our investment services could potentially help you grow your money over time so a sizeable amount is ready to use when your children need it most.
Whether you want to invest quickly and easily online, or be involved in the day-to-day running of your portfolio, we could have the package that meets your needs. And we provide stocks and shares ISAs, as well as the cash equivalent, for tax-efficient, long-term saving.
We could even provide an option that enables you to have an overdraft using your investment portfolio as collateral – called Investment Backed Lending. You stay invested but get access to extra funds.
An important thing to remember when investing though, is that the value of your investments can fall as well as rise, and you may not get back what you put in.
Find out more
Learn more about our borrowing options. Please speak to your private banker or call Coutts 24 on 020 7957 2424 to talk through these and all the other options available to you.
In the meantime, you can use our online mortgage calculator to find out what the impact of using your savings towards an Offset Select Mortgage would be, as well as how much you could borrow and at what cost.
And who knows? You may find yourself visiting your loved ones in their very own home. Although don’t be too quick to close the ‘Bank of Mum and Dad’. They’ll need to furnish the place too…
When investing, past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.
INVESTMENT BACKED LENDING
This product may not be suitable for you if:
- you are using it to purchase your primary personal residence, a second or holiday home for personal use, or related expenses, such as renovation/improvement on such properties or related lease/service charges.
- you require any advice to you on the merits or suitability of the product for you.
- you rely on the income and capital from your investments and cash to maintain your standard of living.
We strongly recommend you seek your own independent advice if you are unsure whether this product is suitable for you. We also recommend that you seek tax advice as this is not something we provide.
Before you borrow against investments, you should understand these risks:
- If the security you provide is insufficient to support the amount you have borrowed, you may be required to rectify the shortfall at short notice – this is referred to as a margin call
- If you borrow to purchase investments and these investments are themselves provided as security for your liabilities, your losses or gains could be magnified
- If your borrowing is in a different currency to the limit, fluctuating exchange rates could result in the limit being exceeded and you may be required to rectify the shortfall at short notice – this is referred to as a margin call.
- Lending secured over investments can have an adverse impact on the value of your investments. This risk is amplified if the funds are used for leverage purposes. Investment values can fall as well as rise, your capital is at risk.
The final decision whether to proceed must be your own and in making your decision you should carefully consider the comparison between borrowing costs and potential investment gains/losses.
LENDING AGAINST INVESTMENTS MUST NOT BE USED FOR RESIDENTIAL PROPERTY PURPOSES. SECURITY IS REQUIRED, FOR WHICH A FEE APPLIES. OVER 18S ONLY.
OFFSET SELECT MORTGAGE
Coutts Offset Select Mortgage may not be suitable for you if:
- You require access to your offset deposits that significantly impact the benefits to your mortgage
- You do not have any deposits to offset
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
Coutts Offset Select for mortgage amounts over £750,000. Over 18s only. Terms and conditions apply. You may not be eligible for all Coutts mortgage solutions.
We’re committed to supporting clients who may be affected by coronavirus and have robust plans in place to minimise any disruption to our service.
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