How you can help with housing costs
Ways to help family and friends get a deposit
Getting on the housing ladder isn’t easy these days, so if you want to help a loved one, we’ll show you how, without compromising your own financial future.
Making your money work for the younger generation
In some parts of the UK, a shortage of homes has fueled a rise in house prices in recent years1, so it can take a long time for many first-time buyers to save up enough money for a deposit – up to seven years in London and four years in the rest of the UK2. Londoners need a 283 per cent pay increase to afford to buy a home in the capital, according to a 2017/2018 report from the National Housing Federation. And even in areas where house prices have stalled or fallen, the deposit and income needed are often still too much for many young people.
As a result, over a third of first-time buyers in England now turn to family for a loan or financial gift to buy their home, and a further one in 10 rely on inherited wealth3. But it’s not just parents who are offering this helping hand – grandparents are also providing financial assistance. According to our exclusive survey with YouGov4, almost one in 10 grandparents with a grandchild over the age of 23 had given them money towards a deposit in the last 12 months, or plan to in the next year.
If you’re thinking of helping someone you know to get on the housing ladder, whether they’re a relative or a friend, there’s a range of methods available to you. Here are our top five.
1. Use your savings as security
According to a 2019 report from Legal and General5, one in 10 over-55s no longer feel financially secure after helping their children and grandchildren buy a home. But we’ve got good news.
You could use your savings to not only help a younger family member or friend get on or move up the property ladder but also make a healthy return for your own future.
Our Family Springboard Mortgage means you put up security on a loved one’s mortgage while safeguarding your nest egg, as you’ll earn an attractive rate of interest on your savings for the agreed term. And the person you help will still stand on their own two feet, as they’ll be responsible for their own property and its monthly payments.
How it works is that after they’ve applied for a mortgage, you open a Helpful Start account with us and put 10% of the chosen property purchase price into it. Your loved one can then borrow up to the full property purchase price because you’re providing 10% as security for five years. After the period ends, you’ll get your money back with interest – to re-invest, put towards your retirement or to help someone else. There’s no limit to the number of Helpful Start accounts that you can have open at the same time. Just remember that If the home buyer misses a payment, it might take longer for you to get your money back and you might not get back your full savings and interest.
Subject to application, financial commitments and borrowing history. Terms and conditions apply.
2. Gift or lend cash
For most mortgages, the lender will ask buyers to provide at least 5% as a deposit. If you can afford to help your relative or loved one put down a 10% or 25% deposit, they’ll have access to a far greater choice of mortgage options, which could include lower interest rates.
When giving a large sum towards the purchase of a house, consider having a formal agreement in place that states whether it’s a gift or a loan, and what the terms are. This may help to serve as a reference for future conversations, removing doubt about whether the money needs to be repaid and reducing the emotion attached to the transaction.
If your loved one is buying with someone else, then setting up a legally binding document, known as a deed of trust, gives you both protection if the relationship ends. It means you can note that the property’s deposit belongs to one person only in a joint purchase, for example.
The money that you lend will need to be declared to the prospective mortgage lender, who’ll consider it when assessing the application. Bear in mind it could lower the amount they’re willing to offer to lend the first-time buyer.
Always seek independent financial advice.
3. Getting the money to help
If you don’t have the savings to help your loved ones, then you might be able to borrow money instead. However, we strongly advise that you evaluate your own personal financial situation carefully and your ability to repay any borrowing before choosing to do this.
As an alternative, if you have a large amount of equity in your property or own your property outright, have sufficient income but don’t want to give away or use your own savings, you may be able to remortgage or release equity from your property as an option.
You should get independent financial advice and discuss arrangements with family members. And have a think about the way gifting or lending money to your loved one will affect your own finances.
Your home may be repossessed if you do not keep up repayments on your mortgage.
4. Consider a joint mortgage
You could ask us about applying for a joint-borrower, non-proprietor mortgage. This means applying for the mortgage with your family member and accepting joint responsibility for making mortgage payments, but without you having a legal claim to the property. This differs from a guarantor mortgage, as guarantors only become liable for the debt if the mortgage applicant can’t make payments at all. Both you and the non-proprietor applicant will need to show that you can afford the mortgage payments.
Getting a standard joint mortgage is another option, which means your financial situation will be considered alongside the property buyer’s, and you’ll both be named on the deeds. You could choose to own a specific share as ‘tenants in common’ to reflect different contributions.
Before considering any of these options, we recommend getting independent financial advice.
5. Invest in property
Investing in a buy-to-let property gives you the option to gift it or sell it in future, so you could make a profit if property prices rise. You could rent it out to younger relatives or friends, benefitting you both, as you could offer them a favorable rate and earn some extra money. Letting a property to an immediate relative is known as a ‘regulated’ buy to let – not all mortgage lenders cater to this, so you’ll need to do some research.
Of course, there is the risk that house prices could go down in your area. And when you’re looking at your budget, factor in the costs for upkeep or refurbishment of the property, as you’ll be responsible for it as the landlord.
Alternatively, you could buy an additional property, known as your secondary residence, for your child to live in once they move out of the family home, so that they can save money on rent.
If you’re considering any of these options, we recommend getting independent financial advice.
If you’re not able to help financially at the moment, you can still give practical help by providing valuable information about the property ladder – see our detailed guide for first time buyers for tips.