How to help your grandkids get on the property ladder

Getting on the property ladder is getting harder and harder, and you might be thinking about buying your grandkids a house instead of leaving them money in your will. There are a number of options available in this regard.

Become a guarantor

Being a guarantor has been an option for a number of years and the advantage is that it involves no upfront payment. However, you are effectively securing the mortgage debt and therefore if your grandchild defaults, you will have to fund any shortfall. Many of the guarantor mortgages currently on offer require you to provide your own home as collateral. Provided the payments are maintained, you won’t have to pay anything, but if you default and are unable to make the necessary payments, you could, in extreme cases, lose your home.

Donate or loan

If they don’t have the money for a deposit, you can always make a simple donation or loan. Generally, the larger the down payment a buyer is able to put down, the better the interest rate they can get. However, lenders are often wary of loans and there can be problems securing these payments as lenders may not be happy to accept a second charge on the property. They tend to be more relaxed about outright gifts, but you’re likely to have to sign a statement that the money is indeed a gift and you don’t expect a refund anytime in the future .

Get a joint mortgage

If you don’t have the money available to donate, joint mortgages are another option, especially useful if the grandchild is just starting out and expects their income to grow in the early years of life. ‘mortgage. Taking the mortgage out in common would initially allow them to borrow more than they could afford on their own and you could be taken off the mortgage once they were in a better financial position. Be aware that some lenders will require the property to be registered in a common name, which could mean you incur additional tax liabilities. Some however allow a joint mortgage with only the child registered as the owner and this is generally a preferable option from a tax perspective. If you were to be a co-owner and already own your own home, you should also keep in mind that the higher Stamp Duty Property Tax (SDLT) rate would also apply, which could significantly increase the initial costs. .

Get a “cleared” mortgage

If you have savings that you ideally want to keep, some lenders may offer you a type of family mortgage. It works more like a standard type of offset mortgage where your savings are placed in an account (which is not accessible to your grandchildren) but the interest charges on the mortgage are reduced as they are offset by interest on savings. There are a number of variations on this theme, with some lenders taking the grandparents’ money as collateral allowing 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 released on a fairly regular basis as lenders see increased demand for this type of arrangement.

Get an “intergenerational” mortgage

One of the most recent innovations in this area is the ‘intergenerational’ mortgage which was launched recently in the UK. The intent is that this will allow grandparents to borrow to finance a grandchild’s (or child’s) first home by offering their home as collateral, but with the intent that other members of the family pays the interest or settles the debt. This is because mortgage payments can be made on an interest-only basis and the mortgage passed on to family members after death. They can then choose to repay the loan or continue with the mortgage arrangement. Intergenerational mortgages have been available in countries like Sweden and Japan (where the cost of home ownership has reached unprecedented levels) for some time, but it remains to be seen if it’s something that will take off here.

In conclusion, there are a variety of options to help your grandchild get on the property ladder. The right option for you depends on your personal situation, but in all cases we advise you to research your options carefully and seek professional advice before making a final decision.

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