Almost 1.6m households spend more than half of their disposable income on their rent or mortgages, according to figures published by the Resolution Foundation. The fact of the matter is that many young people are also unable to save for a deposit with most of their disposable income going towards rent. Fortunately, there are a few mortgage schemes that help first-time buyers get their foot on the property ladder. For example, a family-shared mortgage allows a first-time buyer to get a joint mortgage with a family member in order to afford the mortgage and house. Most often this family member is a parent, or sometimes a grandparent. It sounds like the perfect solution if your parents are in the financial position to assist you, but it’s worth considering all the facts before making the decision to take out a family-shared mortgage:
1. What type of shared family mortgage will you take out?
Recently, Britain has seen the launch of a new family mortgage by Family Building Society where young adults can buy a house with only a 5% deposit. Other family members can then combine funds to guarantee the mortgage and ensure that the monthly payments are more affordable. This is a great alternative for youngsters who don’t want to take hard cash from their parents, because there is also an option for their parents or grandparents to use their assets (such as their own houses) to guarantee the loan.
2. Will it affect relationships?
Most people will tell you that money and possessions quickly lose their charm when they start negatively impacting on relationships and Chief Executive of Family Building Society Mark Bogard, says, ‘Our research shows that children would rather soldier on than take money out of their parents’ retirement pot.’
A good way to ensure that everyone is on the same page is firstly to discuss it with all interested parties, and then to draw up a formal contract. For example, if you have siblings, they may react negatively to your parents assisting you with a mortgage if the same wasn’t done for them. If this could be the case, then it is best to have family meetings to ensure that everyone airs their feelings and that you can then make a decision based on all the facts (and feelings).
3. Is it the right mortgage scheme for me?
There are several mortgage schemes that help first-time buyers get on the property ladder, including shared ownership schemes and help-to-buy schemes. The advantages of these schemes is that there is no emotional obligation with the loan, however, there will be a greater financial obligation to a financial institution, and as is the case with the shared ownership scheme, you will only own a percentage of the house. When a family takes out a mortgage together, that family will own the house in its entirety after the loan is paid off.
The reason that young buyers need to resort to special mortgage schemes is a sign that the housing market is spinning out of control, according to Shelter’s chief executive, Campbell Robb. “A whole generation of young people are working hard and saving hard, but our desperate shortage of affordable homes still leaves them priced out. Instead they have to choose between becoming part of the ‘clipped wing generation’ stuck living in their childhood bedrooms, or ‘generation rent’ paying out dead money to landlords,” says Campbell.
Family-shared mortgage schemes are a valid alternative to the above grim scenario, but can also put undue pressure on parents and grandparent by eating into their retirement savings. The solution is to carefully consider all the facts before committing to a family-shared mortgage.
Disclaimer: The information and data provided are for general information purposes. They do not constitute investment advice nor can they take account of your own particular circumstances. If you require any advice on investments, you should contact a financial or other professional adviser.