Helping family members to climb the property ladder

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Helping family members to climb the property ladder

Bump into a first-time property buyer these days and the chances are they’ll be well past their first flush of youth. Indeed, the statistics dictate that the buyer won’t be an individual at all but an established couple with children.

According to the UK House Price Index for August 2021*, the average cost of a property in London was £525,893. Meanwhile, the average graduate salary in the city was just over £30,000. That’s a ratio of more than 16:1. Of course, London is an extreme case, although the average property price in Edinburgh was £314,042.

Small wonder that there’s so much talk these days about the importance of family support when it comes to securing a mortgage. There are growing numbers of young people from all backgrounds struggling to clamber onto the first rung of the fabled property ladder.

We see this frequently at Hampden & Co. Parents are increasingly worried about their children being able to buy their first home, and the options for lending a helping hand can be unappetising. Where finances allow, one option may be to buy a property outright for a child, but as soon as we get into that territory, the shadowy clouds of stamp duty, capital gains and inheritance tax begin to gather.

It's not just about income

As a result, we’ve noticed a buoyant and growing demand for guarantor mortgages – a demand that the market is failing to meet. Indeed, many mainstream lenders no longer offer this option, and when they do it is purely to allow the guarantor to ‘guarantee’ the risk, not to support the actual repayments. They’re put off by the increased regulation around affordability and it doesn’t fit into the prevailing ‘tick box’ model that so many institutions now rely on.

Of course, that’s not the case at Hampden & Co, where decisions are always made on an individual basis. We don’t just look at earnings – we take into account the overall income and assets of both the child and the parent (or another combination of family members) to ensure we can meet the affordability criteria.

In addition, we don’t restrict loan eligibility beyond the age of retirement. As long as the parent or grandparent can demonstrate there will be sufficient income for the duration of the loan, we can look to assist. By contrast, many high street banks will have a maximum age limit in place, regardless of the client’s circumstances.

Importantly, rather than relying solely on the property to be purchased, we can also look to the parents’ property assets and take an additional charge if this is required to get to a comfortable level of loan to value.