Helping first-time buyers
How to help a first-time buyer
You could help your children or grandchildren buy their first home without having to downsize – we help you explore the options, from cash gifts to offsetting.
Many first-time buyers rely on the ‘bank of mum and dad’ to get onto the housing ladder.
Over a third of first-time buyers in England turn to family for a loan or financial gift to buy their home, and a further 1 in 10 rely on inherited wealth1.
But it’s not just parents who are offering this helping hand – grandparents are also providing financial assistance to younger generations.
Whether you’re looking to gift or lend money to help someone buy their first home, downsizing isn’t your only option. In fact, there are a range of alternatives available to you – here’s the top 5 to consider.
Use your savings as security
Your savings could be working to help a first-time buyer onto the housing ladder.
If you're eligible for Premier, you have the opportunity to make use of your savings twice by combining the benefits of an offset mortgage with a Family Springboard Mortgage.
With an offset mortgage, you can link your savings and mortgage so you only pay interest on the difference, to reduce your existing mortgage repayments or your mortgage term.
You can also use your savings as a security deposit for a first-time buyer, through our Family Springboard Mortgage. This enables you to help a first-time buyer secure a mortgage, without losing control of your money.
The buyer can apply for the mortgage without a deposit, as you provide10% of the property price in a Helpful Start savings account. This 10% acts as security against the mortgage.
After 3 years, you can access and withdraw your savings. However, if any mortgage payments are missed, we may retain your savings to pay towards any amount still owing.
Give or lend cash
In some parts of the country, a shortage of homes has fueled a rise in house prices in recent years. As a result, it can take longer for many first-time buyers to save up enough money for a house deposit2.
Giving or lending money that a first-time buyer can put towards a deposit is a common way to help a younger family member onto the ladder.
Most mortgages today require buyers to put down at least 5% as a deposit. If you can afford to help your children put down a 10% or 25% deposit, they will have access to a far greater choice of mortgage options, which could include lower interest rates. However, there are different tax implications to consider if you gift or lend the cash .
Gifting can be an effective way to reduce future inheritance tax bills. Any gift you make is deemed to be outside your estate for inheritance tax purposes, provided you live for a further 7 years3.
If it’s not a gift, the money will need to be declared to the prospective mortgage lender and it will be considered when assessing the mortgage application. This could lower the amount lenders are willing to offer the first-time buyer.
Bear in mind that tax rules may change in the future and we don’t give tax advice. Always seek independent financial advice.
Consider a joint mortgage
Getting a joint mortgage is another option.
If you get a joint mortgage, it means your financial situation will be considered alongside the property buyer’s, and you’ll both be named on the deeds.
One way to help a first-time buyer through a joint mortgage is to act as a guarantor. With our Family Affordability Plan, you can act as a guarantor for your family members by applying for a joint mortgage. Unlike some joint mortgages, you do not become joint owners of the property, reducing the tax and other legal implications compared to a typical joint mortgage. However, you do remain jointly liable for the repayments. You should get independent legal and tax advice before considering this option4.
Pay into a Help to Buy: ISA
You could also help a prospective first-time buyer save into a Help to Buy: ISA account.
The Help to Buy: ISA savings account is aimed at helping first-time buyers get onto the property ladder. It’s different from other ISAs because the government adds a 25% cash bonus on savings between £1,600 and £12,000 to help savers work towards a deposit for a first home. The government bonus is payable subject to meeting the Help to Buy: ISA scheme rules.
For your family member to be eligible, they must not have paid into (or subscribed) to another cash ISA in the same tax year and meet the Help to Buy scheme eligibility criteria.
Read our Help to Buy: ISA guide for more information.
Borrow against your current home
You have 2 options for borrowing against your current home: a further advance or a home equity loan.
With a further advance, you may be able to borrow up to 85% of your property’s value, including your current mortgage and any extra you want to borrow. You’ll have to pay interest (and possibly capital repayment), but it might be at a different rate than your original mortgage.
Home equity loan
With a home equity loan, you borrow money against the value or 'equity' in your home. This equity is the difference between the saleable value of the property and the borrowing you have against it. You should get independent legal and tax advice if you’re considering this option.
And remember to think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
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Buying property with other people
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Family Springboard Mortgage
Buy your home without a borrower deposit
Buy a home without a borrower deposit if your family or loved ones can provide 10% of the property’s price as security.
Help to Buy: ISA
Help with saving towards your first home
If you bank with us, you could open an ISA online in minutes.