A leg-up on the ladder
FIVE-MINUTE GUIDE TO... CO-BUYING A PROPERTY
AS HOUSE prices start climbing again, growing numbers struggle to get on the property ladder without a little help from their family and friends.
Astonishingly, three in every five first-time buyers get financial help from the Bank of Mum and Dad, research from Just Group shows.
That figure has tripled in the last 30 years, while co-buying with friends is another option for those who cannot afford to go it alone.while tempting, there are pitfalls unless you plan carefully.
Getting on the property ladder is hard for the young, with millennials half as likely to own their home by age 30 as baby boomers at the same age.
Just Group communications director Stephen Lowe said the Bank of Mum and Dad is set to help to the tune of
£6.3 billion this year, but it is also under financial pressure, as many are caught between supporting children and elderly parents: “They are understandably keen to help younger family members, but too many push their own retirement plans to the backburner.”
Homeowners Alliance chief executive Paula Higgins said most banks will accept a gifted deposit, but may ask for written confirmation that it does not have to be paid back: “If you lend the deposit, this may limit your children’s choice of mortgages, as lenders are reluctant to take into account money that has to be repaid.”
If you do lend money, write a loan agreement, setting out what needs to be repaid and when, and what happens if someone dies or you need the money back. “If the family member is buying with a partner or a friend, draw up a deed of trust, stating that you gave the money to your child, and it belongs to them in the event of a breakup,” Higgins said.
Alternatives include taking out a guarantor mortgage, but this leaves you on the hook for any unpaid debt. Or you can buy with your child or grandchild, but if you already own a property, this would count as a second home: “You may face the 3 per cent stamp duty surcharge, and capital gains tax when you sell.”
Those pooling finances to co-buy with friends also need to take care, said
Simon Nosworthy, head of residential conveyancing at Osbornes Law.
Again, draw up a trust deed, setting out how much each buyer put in, who owns what percentage of the equity, and what happens if one person wants to sell, or loses their job and cannot afford the mortgage: “Failing to write a trust deed is tantamount to financial suicide.”
Nosworthy also suggested writing a will, setting out what would happens to everybody’s share if they die, and a cohabitation agreement to determine who pays for repairs and utility bills.
Rosita Janulion, mortgage expert at Habito, said those who cannot rely on family or friends should consider Government-backed schemes such as Help to Buy and Shared Ownership.
“The Lifetime Isa can help you build a deposit, as you get a 25 per cent Government-funded top-up, worth up to £1,000 a year,” Janulion added.