How can I help my child buy a home?

Taking that initial step onto the property ladder can be daunting. Quite apart from the financial hurdles, the process of finding a suitable home, making an offer and navigating the legals will be entirely unfamiliar to a first-time buyer (FTB), particularly if they’re still relatively young.

So, as a parent, what can you do to help your child buy their first home?

1. Start early. The sooner you can begin planning, the better, as it can take a good three years to save up for a deposit.

2. Find out what properties really cost locally. Forget the headlines telling you that property prices are out of the reach of most FTBs and speak to a local property expert who can give you a realistic idea of how much a first home is likely to cost.
   
   

Importantly, help your child manage their expectations! Their first home is highly unlikely to be everything they’ve dreamed of and they’re likely to have to compromise on space and/or location. Remind them that this is just a first step, and they can move on to something bigger and better in a few years.

3. Speak to a mortgage broker. The temptation is to start looking at homes, but until you know how much your child can realistically afford to borrow and repay each month, there’s very little point in getting excited or downcast by what you think is or isn’t affordable.

Some good news for FTBs is that in July the Government launched a new mortgage guarantee scheme which encourages lenders to offer 95% mortgages, and the maximum loan-to-income ratio has been increased. This means FTBs can potentially borrow more than 4.5 times their salary, with Nationwide’s ‘Helping Hand’ product offering mortgages at six times annual earnings (provided repayments are considered affordable). 

Our partners at Mortgage Scout have friendly experts that specialise in helping FTBs – you can arrange an initial appointment with them easily via their website.

4. Help them work out a budget and savings plan. The mortgage broker can help you understand all the costs of buying – deposit, mortgage and legal fees, stamp duty, etc. – then you and your child can put together a realistic budget that will enable them to afford to buy within a certain timeframe. How much have they got now, what should they be able to save each month and could a Lifetime ISA help boost their savings?

5. Could they move home while they save for a deposit? Even though it may be hard for your child to move back home if they’ve been renting independently, it could dramatically reduce their monthly expenses and help them save if you’re able to accommodate them.

6. Could they buy with someone else? If they’re struggling with affordability, it’s worth discussing whether they could buy with a friend or another family member. If that’s a possibility, it’s worth speaking to a conveyancing lawyer to find out what the options are for joint ownership and equity splits.

7. Look for shared ownership options. Although not everyone will have a SO scheme in their area, it’s well worth checking. This is where you own part of a property and pay rent on the other portion (usually to the local authority), with the option to increase your ownership share over time. This way, you can build equity that will allow you to move on in the future to full ownership. Find out more from our sister company, SOWN.

8. Check out whether there’s a First Homes scheme in the area. This is a government scheme that lets FTBs buy a new build property for 30% to 50% less than the open market value. To qualify, your child must earn under £80,000 a year and be able to get a mortgage for at least half the price of the home. While it’s a great initiative, it isn’t yet very widespread – see the government website for more information.

9. Decide what financial help you may be able to give. If you’re in a position to put some money into the property, discuss how that could work. You can gift your child up to £3,000 a year tax free, which could add to their deposit funds, or you could consider buying with them and part-owning the property. Even if you can’t help with a lump sum of capital, you may be able to act as a guarantor to help them secure the loan they need. This is definitely something to chat through with a mortgage broker and it’s important to make sure you are able to afford to giveaway the funds.
   
   

Once your child is in a position to move forward and start looking for a specific property to buy, come and speak to us in your local branch. Our teams of experts can not only help with finding a suitable home, but they’ll also be able to guide your child through every stage of the process and help ensure their first buying experience is as smooth and stress-free as possible.