CAN I HELP MY CHILDREN GET ON THE PROPERTY LADDER?
Ian Gray, Senior Partner at Property Finance specialists, Kinnison Limited discusses how it is getting easier to use your home equity to assist your children.
Much has been written about the difficulty young adults have making their first home purchase. It’s true that without substantial help with a larger deposit, it’s almost impossible to save much of a deposit whilst paying rent along the way. Imagine someone on a £60,000 salary, with a £500,000 flat purchase. The most they can hope to borrow is likely to be around £300,000, meaning they must find £215,000 to cover the deposit and Stamp Duty alone.
So if you’ve assumed that you’re too old to get a mortgage, or couldn’t afford to service a larger mortgage, you might now qualify.
Traditionally, parents might have had to liquidate investments to pass on enough to make a difference for their child’s first house purchase, or to help with that second step on the ladder when they start a family and must upsize.
In the past, it’s also been common for parents to “guarantee” the child’s mortgage – signing a Deed promising to make the payments if they were called upon to do so. However, since the credit crunch, many lenders have banned “guarantor” mortgages altogether.
Recent changes to several lenders’ criteria mean that it’s now easier for older homeowners to remortgage their homes to provide that assistance. So if you’ve assumed that you’re too old to get a mortgage, or couldn’t afford to service a larger mortgage, you might now qualify.
Increased Maximum Age
Many mortgage lenders will now extend the term until the borrower’s 80th birthday, rather than the maximum state retirement age which has been the norm. So, someone aged 64 today could potentially remortgage over a 15 year term to release cash, and not have to worry that they must either sell investments or be forced to downsize until well after their retirement. As long as they can show they have sufficient income (from sources including earned income and pensions) to support the payments, lenders have become more flexible on age. There are also options for asset-rich, income-poor borrowers, and they tend to be for larger mortgages over £1,000,000.
What if you don’t have enough in other assets? Some lenders will allow you to borrow up to 50% of your house value providing you have a sensible level of equity and have real plans to downsize prior to the expiry of the mortgage term.
Interest-only is Easier Now
Interest-only mortgages have recently been somewhat controversial, but we are of the opinion that it has a place for certain clients. Most lenders have begun to agree, and we’re seeing it in recent changes to their lending policy. If you have in excess of the amount of the desired mortgage held in other investments or in other property assets (i.e. buy to let property) then it’s usually possible to release up to 75% of your home’s value, all on an interest-only basis. For example, a £500,000 mortgage against a house value of £670,000 could be secured on an interest-only basis if you had at least £250,000 in stocks and shares, and equity in a let property of £250,000, and you’re willing to liquidate both to repay the mortgage before the end of the term. This is assuming, of course, the interest payments are deemed affordable.
What if you don’t have enough in other assets? Some lenders will allow you to borrow up to 50% of your house value providing you have a sensible level of equity and have real plans to downsize prior to the expiry of the mortgage term. A few will even go higher than 50%, but the plans to downsize must be robust and the equity in your home substantial.
Rates are at Historic Lows
It’s possible to remortgage your home on rates as low as 1.39% today. This would be on a two-year “tracker” variable rate, so it should be noted that it could increase over time. For example, a £500,000 mortgage at 1.39%, on an interest-only basis would result in initial monthly payments of only £579.16 per month. The deal comes with a £995 lender’s arrangement fee and the APR is 3.7%.
As long as you have either income or assets to deal with the risk that your payments will increase in the event of an interest-rate hike, you may consider taking advantage of these extremely low mortgage rates. It’s never been more affordable.
Readers of the financial press will know it’s not easy to get a mortgage today, and tight regulation has imposed rules to prevent lenders from allowing us to become overextended. The spirit behind these rules is right and proper and we mustn’t allow the market to veer back to how it was before the credit crunch. But in cases where borrowers have either income or assets adequate to support a sensible level of borrowing, there are new, “challenger” lenders out there who will take a common-sense view of your case. It’s easier for us to secure lending for older clients where it wasn’t available before.
As a last resort, your home may be repossessed if you do not keep up with payments.
Kinnison Limited of 23 Hanover Square, London W1S 1JB is an appointed representative of H L Partnership Limited, Pharos House, 67 High Street, Worthing, West Sussex, BN11 1DN, England, which is authorised and regulated by the Financial Conduct Authority. H L Partnership Limited’s FCA number is 303397.
JM Finn & Co is not able to give individual property or borrowing advice. Clients who wish to explore the points that this article refers to should seek advice from a specialist in relation to their own personal circumstances.