New ways to help your children buy a home

The 'Lend a Hand' scheme

For a helping hand that doesn’t cost an arm and a leg, LloydsTSB has launched a mortgage deal that allows parents to help their children buy their first home, without having to make a substantial cash gift.

Called “Lend a Hand”, the scheme offers first-time buyers a 95 per cent loan-to-value (LTV) mortgage at a fixed rate of 4.39 per cent, provided parents hold large enough savings in a specified Lloyds account.

Only a few lenders are currently giving 95 per cent loans, while those that are often charge much higher rates of six or seven per cent. So this offers a more affordable option for first-time buyers who don’t have big deposits or parents able to cash-in their savings.

This way, parents retain ownership of their savings, which earn a fixed rate of 3.5 per cent for three-and-a-half years, but LloydsTSB takes a legal charge on these monies. The savings will generally need to be 20 per cent of the property’s value and, if the borrower defaults on the mortgage, the bank can claim the cash.

However, after the three-and-a-half years, if loan repayments and/or rising house prices have taken the LTV down to
90 per cent or less, the bank will remove its charge on the savings and the first-time buyer then continues to operate the mortgage independently. The mortgage deal also requires the first-time buyer to put down a five-per-cent cash deposit and there is a fee of £995.

'Mutually Exclusive' deals

Skipton Building Society has a similar deal for first-time buyers called “Mutually Exclusive” - although mortgage brokers say that its rates are less attractive. Parents can guarantee their children’s mortgages with a range of lenders. These guarantor loans allow young buyers to borrow more than they could themselves, although their parents will become liable for the mortgage debt.

'Family offset' mortgages

Offered by Market Harborough Building Society and some other lenders, these mortgages allow parents to use their savings to reduce the interest bill on a child’s mortgage in return for receiving no interest on their cash.