First Time Buyer Shared Mortgages

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First Time Buyer Shared Mortgages

The current state of the housing market means that many first-time buyers have to, or choose to, share a mortgage with friends, a co-buyer or family.

Whilst this initially appears to be the perfect solution for first-time buyers struggling to afford a house, there is much to be aware of when choosing a group mortgage.

More information about getting a group mortgage.

Getting a first-time buyer mortgage with a parent/parents

Many first-time buyers need help from their parents to afford a home, and there are many way in which parents can help their children to afford a house. First-time buyers can look to parents for the provision of a deposit, with mortgage repayments and in a number of other ways. Mortgage lenders, due to the stretched affordability of mortgages for first-time buyers, have included other ways parents can help their children.

For instance, those parents who are still making money either from a salary or a pension can have this income included when the lender is considering the mortgage. In this instance, the lender takes into account the salaries of both the first-time buyer and the parent. With mortgage lending often conducted on income multiples, considering the income of a parent can help in getting a mortgage. It is worth planning, in this instance, who benefits in the event of capital gains.

When it comes to making a mortgage agreement, whoever is involved in the decision will also be included on the property deeds, meaning that both parent and child can be registered as the property owners.

For tax reasons, it is extremely important to be aware of what happens if the child takes on the whole mortgage themselves. If this is considered a transfer of interest, Stamp Duty Land Tax could be payable.

However, if it is considered a gift, Capital Gains Tax could be payable.

Another way in which parents can help their first-time buyer children is by including a ‘guarantor facility’ within the mortgage loan. This means that the parent will be liable as a guarantor for any amount of the loan that their child, the first-time buyer, does not qualify for. Some mortgage lenders offer graduate or professional mortgages whereby the first-time buyer has their ongoing salary considered. Click here for more information about graduate mortgages for first-time buyers.

Parents do not need to be in full-time employment to act as a guarantor. Lenders can assess a full financial situation based on savings, assets, property, and shares. For first-time buyers, having a guarantor allows a degree of independence not available if the parent is actually involved in the mortgage. Mortgage lenders will remove parents’ names once the first-time buyer can satisfy the mortgage income multiples themselves.

First-time buyer family offset mortgages

Another innovative approach mortgage lenders have developed to help first-time buyers get onto the property ladder is the family offset mortgage.

Click here for a guide to standard offset mortgages.

Unlike standard offset mortgages, family offset mortgages work by linking the savings of the parents to the mortgage of the first-time buyer, their child. This type of mortgage loan also allows any other blood relatives to link their savings to the mortgage debt held by their child. A family offset mortgage therefore reduces the amount of interest that the first-time buyer has to pay on their loan.

Pension income first-time buyer mortgage

Another innovative loan product where by parents can share a mortgage loan with their children is to use the income from a pension. This means that the income from a pension held by the parent will be treated in the same way as a salary. Monthly expenditure from this pension scheme will be considered, as will the life expectancy of the pension holder. Lenders will apply strict criteria to this, and may only lend for a shorter period or on an interest-only basis.

Getting a first-time buyer mortgage with a co-buyer

As well as getting a first-time buyer mortgage with friends or relatives, the option also exist to find an independent co-buyer who is not a friend or member of the first-time buyer’s family. A property co-buyer can be extremely useful for the first-time buyer, because it can halve the amount of deposit required, not to mention significantly reducing monthly mortgage repayments. In this way, first-time buyers can sometimes jump up a step on the property ladder and live in a nicer house earlier on.

Property co-buying has many advantages, but it also has some pitfalls. As a first-time buyer, seeking out the right property partner is absolutely essential. Co-buying a property with someone else, although logical in a period of high house prices, can open up the potential for financial disaster. Measures must be taken by the first-time buyer to protect themselves and their investment.

Some companies offer a property co-buy introduction service, and these may be able to advise a curious first-time buyer. However, come key things should be kept in mind. Experts advise not going into property with a minority stake, making sure all agreements are in place in writing, and making sure you trust your co-buyer completely.

There are a wide variety of first-time buyer mortgage loans on the market, so co-buying may not be necessary for many first-time buyers.

Getting a first-time buyer mortgage with a friend.