How can parents support their children's home purchase?

It’s a common aspiration to own your own home, but in an era of escalating property prices and mounting financial pressures, this dream can seem increasingly elusive, particularly for younger generations. The role of the “Bank of Mum and Dad” has never been more important in helping to bridge the affordability gap faced by younger buyers. In fact, families support around half of first-time purchases, while those without help will have to wait much longer to afford to buy.

The other side of rising property prices is the increase in property wealth held by parents and grandparents. Three quarters of all property wealth in the UK is owned by over 50s, and for those who bought back in the ‘70s, they will have seen their property’s value increased by 227% when inflation is taken into account. This means that even families who do not have lump sums of cash savings do have assets which can be used to help the next generation buy.

In this article, Saga Mortgages explain the various ways parents can support their children's journey toward purchasing their first homes.

How can a parent help their child buy a house?

1. Become a guarantor

Becoming a mortgage guarantor involves committing to covering the mortgage if your child defaults on their repayments, essentially acting as a ‘back-up’, which gives an extra layer of security for lenders. You will normally offer some form of ‘security’ for the mortgage, which is usually cash savings like with a Savings as Security mortgage, or some equity that you have built up in your home.

You can also use your earnings to support their mortgage application through an Income Boost. Also known as a Joint Borrower Sole Proprietor mortgage, an Income Boost works by adding part of or all of your earnings to your child’s income when they apply for a mortgage. With a larger household income, they can increase the amount they can borrow for a loan.

Because you will be acting as a guarantor, you will not need to contribute to the house deposit, or the monthly repayments, unless your child defaults, in which case you will be required to step in. You will also not be named on the property deeds, and won’t own a share of the property. This can make it easier to become a guarantor, and also potentially allow you to help more than one child get onto the ladder without giving a cash gift to each of your kids.

2. Provide financial assistance

On average, it takes eight years to save up for a house deposit. Contributing to your child’s house fund can significantly speed up the time it takes them to purchase their first home. You could choose to do this through cash savings, or through a Savings as Security mortgage if you want the money to be returned to you later on.

An alternative to dipping into savings is to unlock money from your property with a Deposit Boost. This involves taking out a small mortgage on your property in order to release funds built up in your home. The proceeds are then gifted to your child, which they can then use to put down a larger down payment on their own mortgage. With a larger deposit, they can access lower mortgage interest rates, keeping their monthly costs low and reducing the amount of interest they will have to pay. If you hold a lot of equity in your home, you could release enough funds to help multiple children onto the ladder.

3. Co-own the property with your child

If you want to help your child buy but also reap the benefits of homeownership, you could choose to co-invest with them. This could be through contributing to the down payment in return for an equity stake in their home, or contributing to the mortgage repayments each month. If you are interested in co-owning with your child, Saga Mortgages, provided by Tembo, can help find the right solution for you and your family. Get started today.

4. Let your child live rent-free at home

One of the biggest challenges faced by young people is saving up for a house deposit. In the UK, the average house deposit is £34,500, but in some areas like the South East, the average deposit is £72,000 or higher! Plus, with rents rising, it can be hard to put money aside each month to build up an adequate sum. By allowing your child to live at home for a short period, either living rent-free or paying a subsidised amount, you can help them save up a deposit sooner. 

Read more in our article on should you let your adult kids live at home?

5. Direct them to an affordability expert

Another way you can help your children buy sooner is to direct them to those who are experts in boosting affordability, like Saga Mortgages whose partner specialise in helping buyers, homeowners and movers discover ways they can boost their mortgage affordability, so they can buy sooner or access better rates. In fact, on average their customers increase their buying budget by £82,000!

Conclusion

Assisting children in purchasing their first homes is not only a generous gesture but also a sound investment in their future. Today, parents have an array of options at their disposal, ranging from financial contributions to becoming a guarantor or even co-owning a property with your child. These solutions can empower the next generation to bridge the affordability gap and get onto the property ladder, thereby laying the foundation for their own financial security, stability, and a brighter future.

The award-winning team of mortgage experts behind Saga Mortgages understands the significance and complexity of family support in the home buying journey. They’ve helped thousands discover how they could purchase their dream home through family supported mortgages and specialist schemes. A mortgage loan is secured against your home and your home could be repossessed if you do not keep up your monthly payments. To see what options are open to you and your family, get started here.