ePrivacy and GPDR Cookie Consent by Cookie Consent Why Parents Are Loaning Their Savings to Get Their Kids on the Housing Ladder - Reddbox - Book, Track and Organise

Why Parents Are Loaning Their Savings to Get Their Kids on the Housing Ladder

The Scheme

More banks and building societies have started offering the Family Mortgage, also called the Guarantor or Joint Mortgage, aimed at allowing parents to collateralise their savings or a legal charge over their existing property. Parents will then receive their savings back with some interest over 25 years. Legal and general has cited that just over 80% of parents have helped their offspring onto the property ladder, a consequence of the rising cost of living in tandem with stagnating wages.

Pros and Cons

As opposed to conventional mortgage arrangements, ‘buyers’ can effectively turn a 5% deposit into a 25% deposit with their parent’s savings.

The maximum age of a guarantor is 75 years of age although this will cover the vast majority of guarantors. A major implication would be the consequences of defaulting in a situation of uncertainty (job losses in a recession) or unexpected expenses would place the parents’ savings and possibly their property at risk as well as the property their children occupy.

Tax Implications

The guarantor will incur stamp duty at 3% unless opting for a joint borrower, sole proprietor mortgage, where the guarantor is on the mortgage, but not the property deed. This is necessary is the parents own a property, which their most likely will. We should add that seeking independent advise is always the best course of action.

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