How to help your grandchildren get onto the property ladder
Getting onto the property ladder is increasingly difficult and you may find yourself thinking about buying your grandchildren a house instead of leaving them money in your will. There are a number of options available when it comes to this.
Become a guarantor
Being a guarantor has been an option for a number of years and the benefit is that it involves no upfront payment. However, you effectively guarantee the mortgage debt and so, if your grandchild defaults, you would be expected to fund any shortfall. Many of the guarantor mortgages now on offer require you to put up your own home as security. Provided payments are maintained, there will be nothing for you to pay but in the case of default and you were unable to make the necessary payments you could, in extreme cases, lose your home.
Make a gift or loan
If they do not have the money for a deposit then you can always make a straightforward gift or loan. Generally speaking the larger the deposit a buyer is able to put down, the better rate of interest they can obtain. However, lenders are often wary of loans and there can be issues in securing such payments as lenders may not be happy to accept a second charge over the property. They tend to be more relaxed over outright gifts but it is likely you will need to sign a declaration that the money is indeed a gift and you are not expecting repayment at any time in the future.
Get a joint mortgage
If you do not have the available cash to make a gift, then joint mortgages are another option, especially useful if the grandchild is just starting out and expecting over the first few years of the mortgage to see an increase in their income. Taking the mortgage out in joint names initially would enable them to borrow more than they could afford on their own and you could be removed from the mortgage once they are in a better financial position. Be aware that some lenders will require the property to be registered in joint names which could mean you incur additional tax liabilities. Some, however, will allow a joint mortgage with only the child registered as the owner and this is generally a preferable option from a tax point of view. If you had to be a joint owner and already own your own home then you will also need to bear in mind that the higher rate Stamp Duty Land Tax (SDLT) rate would apply too which could substantially increase the upfront costs.
Get a ‘set off’ mortgage
If you have savings which you ideally want to retain, there are some lenders who can offer a type of family ‘set off’ mortgage. This works rather like a standard type of set off mortgage where your savings are put into an account (which cannot be accessed by your grandchildren) but the interest charges on the mortgage are reduced as they are offset by the interest on the savings. There are a number of variations on this theme with some lenders taking money from grandparents as security enabling them to offer a 95% mortgage to the grandchild but also offering interest on the money held in the savings account. It is therefore worth shopping around as new products are being launched fairly regularly as the lenders see the increased demand for this kind of arrangement.
Get a ‘intergenerational’ mortgage
One of the most recent innovations in this area is the ‘intergenerational’ mortgage which has been launched recently in the UK. The intention is that this will allow grandparents to borrow to fund a grandchild’s (or child’s) first home by offering their home as security but with the intention that other family members pay the interest or settle the debt. Effectively the mortgage payments can be made on an interest only basis and the mortgage passed on to family members following death. They can then choose to repay the loan or continue with the mortgage arrangement. Intergenerational mortgages have been available in countries such as Sweden and Japan (where the cost of home ownership has soared to unprecedented levels) for some time, but whether it is something which will take off here remains to be seen.
In conclusion, there are a variety of options to assist your grandchild getting onto the property ladder. The right option for you depends on your personal circumstances but in every instance, we would advise you thoroughly research your options and seek professional advice before making any final decisions.
Gateley Plc is authorised and regulated by the SRA (Solicitors' Regulation Authority). Please visit the SRA website for details of the professional conduct rules which Gateley Legal must comply with.