Helping Your Child Buy a House Through Equity Release – Thomas & Co

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Helping Your Child Buy a House Through Equity Release

Nowadays helping an adult child get onto the property ladder may seem tricky, especially as the cost-of-living increases. There are several ways you can help your child buy their first house, including equity release, becoming a guarantor and shared ownership schemes.

Nowadays helping an adult child get onto the property ladder may seem tricky, especially as the cost-of-living increases. There are several ways you can help your child buy their first house, including equity release, becoming a guarantor and shared ownership schemes.

Keep your savings in the bank

Releasing equity from your home could give you the ability to raise a deposit for your child’s first house purchase. Your savings stay safely in the bank or within your investment portfolio, and you won’t need to draw from your pension income. Equity release can be a good option if you are asset-rich but cash-poor. And you will remain financially independent from your child, instead of the risk of entering into a joint mortgage or becoming their guarantor.

What is Equity Release?

Known as a Lifetime Mortgage, put simply, this is a long-term loan, which is repaid either when you pass away or if you need long-term care. Depending on your age, health and circumstances, you might be able to borrow up to 50% of the value of your home. Depending on the lifetime mortgage you choose, you may have the option to pay the interest payments each month, make voluntary capital repayments or allow the interest to roll up.

Early inheritance

Equity release can be used as a way to give your children an early inheritance. The borrowed money will not need to be paid until after you die and once your home has been sold. If you were intending for your children to inherit your home, you will need to weigh up the benefits of giving them a lump sum they can use today vs. inheriting your home in the future. If you have more than one child, you may wish to give them equal amounts.

Shared Ownership schemes

The benefit of a shared ownership scheme is the fact that deposits tend to be lower, and this can be a more affordable way for you to release a smaller amount of equity. Shared Ownership is a halfway step between renting and buying. A share of the property is usually owned by a housing association or a local authority, and this can be a good solution for first-time buyers. There are pros and cons with these types of schemes, so always make sure you fully understand the small print and seek expert advice before you commit.

Guarantor mortgages

Of course, if you’re not currently in a position to gift your child a deposit or lend them any money, you do have other options. Acting as a guarantor, you can agree to cover any monthly mortgage payments for their home. Your own mortgage will be taken into account, and this could also mean that your child is able to borrow a higher amount. But it is worth noting that your role will be to give the lender confidence that the mortgage will be repaid.

Joint mortgages

Another option could be to take out a joint mortgage with your child. Obviously, this will make you liable for any monthly payments that your child cannot afford, but you would legally own a share of the property. You would agree in advance on this share of equity and the amount each of you will pay towards the monthly mortgage payments. Always remember to update your Will, so it is clear who owns what percentage of your child’s home.

In today’s volatile economic climate, it can be difficult for a young person to afford their first home. If you are in a position to help your child take their first steps into the property world, then equity release could be the answer. As this is now a highly regulated area, it’s essential to seek professional advice from an experienced, independent mortgage broker.




If you would like to release equity from your home to help your child buy their first house, then talk to our friendly team. Call 01455 238 650 or send us an enquiry.

 

 

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