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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