Later Life Finance – first time buyer support for a family member

Later Life Finance can help a variety of needs such as repaying an existing mortgage, supplementing retirement income, home improvements or providing financial assistance to your family.

In 2022/2023 there was an increase from the previous year of 9% in first time buyers receiving help from their family and friends to get onto the property ladder.

Nearly one in five (18%) parents and grandparents who helped their family members onto the property ladder used their own property wealth to do so. 11% of this amount took out a lifetime mortgage to make a financial gift to a family member.

What is a Lifetime Mortgage?

A Lifetime mortgage is the most common type of Later Life finance. It is a loan secured against your property which does not require monthly repayments. You retain ownership of your property and the interest payable on your mortgage is usually rolled up and added to the loan, but some plans do offer the flexibility where you can pay the interest. You can access some of your equity through a lump sum or a combination of a lump sum and drawdown facility. The loan and the rolled up interest is repaid when the last remaining person dies or moves into permanent long-term care. The amount you can borrow depends on your age and value of your property and you must be over 55 years of age to apply.

With a Lifetime mortgage, you should be aware that this will not be suitable for everyone, may reduce your options for moving and selling your home in the future, will reduce the value of your estate and may affect your entitlement to state benefits.

At Springtide Capital we are committed to providing clear, impartial advice and an excellent level of service and would advise on other options for example Interest only Mortgages and mainstream residential mortgages, to establish the most suitable option. The role of advisors here is key to a full understanding of this complex area.

Gifted Deposits

If you do choose to help your family members get on the property ladder through Later Life financing, one of the ways to do this is through a gifted deposit.

In 2023, the average first-time buyer deposit in the UK was £53,414, although in Greater London, the deposit amount was more than double. For many first-time buyers, saving this amount of money is unachievable and this is why so many aspiring homeowners look for financial help from family members in the form of a gifted deposit.

A gifted deposit is money given to a homebuyer to help them buy a property, the sum can be part or the whole amount of the deposit. 5% is considered the smallest amount required by a mortgage lender in terms a deposit and the bigger your deposit, the better position you are in. A bigger deposit will give you more choice of mortgage products and will mean you need to borrow less overall, keeping your monthly repayments at a lower level. You can also use a gifted deposit to add to any deposit amount you have saved.

In general terms, mortgage lenders prefer it if the person gifting you the money is an immediate relative, such as a parent, grandparent or sibling. You can also receive a gifted deposit from a partner. A gifted deposit is given with the understanding that the money doesn’t need to be repaid. There are no rights or legal interests to the person gifting the deposit. There is no limit on how large a gifted deposit you receive can be, unless a lender stipulates this. In the UK, gifted deposits are generally tax-free, the gift however could be subject to inheritance tax.

Talk to your broker about all aspects of a gifted deposit as they will be familiar with the lenders criteria and will be able to steer you through the required checks and legal paperwork. It is important to seek advice in this area and other options are available to assist a first-time buyer such as Guarantor Mortgages, Family Springboard Mortgages and joint borrower sole proprietor mortgages.

To discuss your mortgage requirements today contact Springtide Capital on 020 8154 7280.

Sources:

https://www.gov.uk/government/collections/english-housing-survey-2022-to-2023-headline-report

https://group.legalandgeneral.com/media/ee3bnxvm/bof-equity-release-final.pdf

Average house deposit UK 2023 | Statista