https://www.telegraph.co.uk/money/consu ... -children/
After spending years paying off your mortgage, would you take on another if it helped your children onto the property ladder?
The Post Office has launched the Family Link mortgage, which lets first-time buyers use the home of a close relative as collateral against their own house purchase.
First-time buyers can borrow 100pc of a property’s value by placing mortgages on two properties – a 90pc mortgage on the home to be purchased and a 10pc loan against the parental home.
Both loans must be paid off by the buyer, with the 90pc mortgage charged at a rate of 4.89pc, fixed for five years and with £500 cashback. The remaining 10pc is an interest-free loan that must be paid off over five years. The parents' property could be at risk if the child defaults on the loan.
David Hollingworth, of mortgage brokers L&C, said this launch showed the difficulties many young people face when trying to buy a home.
“Family Link is a new approach but draws on some familiar themes in recognising that parental and family help will often be crucial to the success of a first buyer’s hopes of getting on the ladder,” he said.
“Using spare equity rather than gifting or locking down cash is a useful alternative, especially as some will not have large lump sums of cash but may have benefited from house price growth that means they do have spare equity.
“The Post Office approach enables the child to borrow 90pc against their new home but another 10pc is secured against the parental (or close relative’s) home. This is in the child and parent’s names but the first-time buyer will make payments on both elements.”
Mr Hollingworth said a first-time buyer purchasing a £200,000 property in this way would pay £1,041 per month for the interest-charging loan and a further £333 a month to pay off the loan on the family property.
He warned that while this product allows children to buy with no deposit, some parents may be unwilling to place another mortgage on their home after spending years paying off their own loan – even if their children are responsible for paying the new mortgage.
Additionally, the child must be a first-time buyer to be accepted for the loan and the parents must have an annual income of £20,000 or more.
Mark Harris, of mortgage brokers SPF Private Clients, added that a similar product at a lower rate is available from Family Building Society, although this requires a 5pc cash deposit from the borrower.
Both Barclays and Family Building Society also offer family offset mortgages, where parents place their cash into a designated savings account and this reduces the cost of borrowing for their children.
Mr Harris said: “Although the Post Office offering appears expensive compared with the Barclays Springboard and Family Building Society products, it is offering higher loan-to-values than Family Building Society, and the Barclays deal is only available over three years instead of five.”
Aldermore also offers its own family guarantee product, and this can be used even if the parents still have an outstanding mortgage on their property. However, Mr Harris said if parents are able to gift a 10pc cash deposit to their children this will usually allow them to access lower rates.
“Should the applicant’s parent be able to release equity or savings to gift to the child, then there are plenty of 90pc mortgages available at a much cheaper rate of interest,” he said.