The Bank of Mum and Dad can help their offspring onto the property ladder by investing in the home their children want to buy, according to broker First Mortgage.
Through what is known as a Family Equity Loan Plan, parents, or another family member, can take a stake in their child’s home by providing a 10 per cent equity loan instead of simply giving them a deposit.
The loan is secured against the home through an agreement, which means the buyer owns 100 per cent of the home. When the property is sold the equity loan will be cleared as per the terms of the agreement
Ian McGrail, managing director of First Mortgage, said: “The Bank of Mum and Dad, as providers of the equity loan, will share proportionally any profits made when it comes to sell the property.”
If the value of the property goes down, no profit is made.
McGrail added: “Alternatively, the Family Equity Loan can be repaid in full or in instalments prior to any sale using an agreed interest calculation if any interest is to be charged. If the parent so decides, this equity loan can also be given as a gift should the circumstances suit.
“As a parent myself, I know how worrying it is to juggle your own financial future with getting your children on the housing ladder. I also appreciate that many parents cannot afford to give children a substantial deposit for purchase of their first home.
“With the family equity scheme we’ve helped hundreds of buyers secure their home with parental support, whilst also providing parents with security over their investment.
“As the property market stabilises we anticipate an increase in support from the Bank of Mum and Dad and by securing a deposit of 10 per cent, parents can not only reduce the overall LTV on their child’s home but can also secure a guaranteed investment for the future.”
McGrail picks out the following best buys for families investing in property together:
1. 90 per cent LTV – Accord Mortgages, two-year fixed rate @ 4.14 per cent, with £845 arrangement fee
2. 85 per cent LTV – Accord Mortgages, five-year fixed rate @ 3.84 per cent, with £845 arrangement fee
3. 80 per cent LTV – Newcastle BS, two-year fixed rate @ 2.74 per cent, with £800 arrangement fee and £195 booking fee.
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