Getting on the property ladder continues to be a struggle for first-time buyers. It can take 13 years for a single first-time buyer to raise enough funds for a deposit alone, and this increases to nearly 46 years for those living in London (https://www.saga.co.uk/money/equity-release/how-to-get-your-children-on-the-property-ladder). It is little wonder then, that many first-time buyers get financial help from their family in order to get a foot on the first rung of the property ladder.
It is not just parents who are providing a financial helping hand to their children wanting to buy a house. Increasingly, grandparents are stepping in, too. Research has shown that 34% of estate agents have seen an increase in grandparents helping out first-time buyers (http://www.propertyreporter.co.uk/finance/more-ftbs-helped-by-grandparents-than-parents.html). But how are the older generation managing to achieve this?
There are several ways that grandparents can help their grandchildren get on the property ladder and find the funds for a deposit. Releasing equity from a property through remortgaging is one of the most common ways that grandparents can help. For many grandchildren mortgage options are severely limited, so more and more grandparents are stepping in to help.
Obtaining a mortgage for grandchild through equity release is something that estate agents are witnessing more and more, with 60% of those surveyed aware that this is often used to help first-time buyers. In fact, half of those estate agents surveyed believe that obtaining this type of mortgage through equity release schemes is a good solution to assist first-time buyers (http://www.propertyreporter.co.uk/finance/more-ftbs-helped-by-grandparents-than-parents.html).
Taking a mortgage for grandchildren via an equity release scheme is not something that grandparents should consider lightly. The older generation must ensure that they are able to afford such an option, without adversely affecting their retirement income, security, comfort and standard of living. If they do not wish to make any repayments on an equity release scheme, and gifting to one of their grandchildren, they must consider the effect this could have on the remainders inheritance.
Some equity release schemes now permit repayment by either interest only, or voluntary payments to control the balance & prevent roll-up of interest. These payments can usually be made by the homeowners, but where affordability may be an issue, some schemes will allow any contributors to make payments. In such circumstances, it’s been known the grandchildren themselves have made payment, to ensure siblings are not unduly affected in any way.
Some grandparents may also consider acting as a guarantor for their grandchildren. Guarantor mortgage options mean that grandparents are able to put up the extra security against the mortgage for a grandchild or grandchildren. The grandchildren would be responsible for paying the mortgage, but if they default, the grandparents, as a guarantor, would need to step in and make the repayments. Again, grandparents would need to consider this option carefully to ensure they are in a position to make the repayments if their grandchild wasn’t able to do so.
Many older people decide to downsize their property as their age advances, and downsizing usually means moving somewhere smaller and more affordable. The money that grandparents gain from downsizing could also be used to help grandchildren raise funds for a deposit on their first home. The advantage of this option is that there is usually less tax risk involved, compared to waiting to leave the cash to the grandchildren in the form of inheritance.
It is always a good idea to get specialist financial advice when considering mortgage options to help grandchildren, as there may be various schemes available at different times to suit individual circumstances. The most important thing is to choose a financial option that works best for both grandparents and grandchildren.