MSE guide to mortgage: parental help with deposit: savings ?

peachespeaches

I read and received the MSE Guide to mortgages today.

Under first time buyers on p19 is a section on parent power which states

"Parents can also help their children without surrendering their cash. There are a number of offset mortgages which will use parental savings to reduce the child's mortgage while still allowing access to the cash if necessary".

How does this work?

We cannot afford to buy without considerable help. My parents have £50000 tied up in a 10 year bond with 5 years to go. They considered helping me but didnt want to draw on the bond and lose the profits.

Could they use the 50,000 towards a house for me but keep the investment with their building society so they dont lose the bonuses and profits?

Does it mean I have to borrow 100,000 but 50,000 would be offset by their bond, so I would only make repayments on the 50,000? We cant afford a 100000 mortgage but we can afford a 50000.

Mr_helpful

No this is very mis leading and to be honest if thats what the guide says it should be rewritten. there is one or two schemes wher a parent can use their savings to offset against their offsprings mortgage thus reducing the term. But in your case they have to come up with the deposit in hard cash ie capital raise on their mortgage or take the money out of savings and give it to you.

jamesd

Offsetting doesn't reduce the mortgage. It reduces the portion of the mortgage on which you pay interest. First you must qualify for a mortgage for the full amount.

Alternatively they could act as guarantors. If they were to leave the bond they could use that to increase hte deposit. Or they could borrow in their own name and lend you that money. You should also be aware that lenders may have restrictions on borrowed deposit money because they often want you to have an equity buy-in yourself.

You should discuss your situation with a mortgage broker to find out what mortgage you can qualify for on your own, then possibly with parents as guarantors.

peachespeaches

That doesnt seem to apply to me, then. They want to keep the bond until it matures, but are willing to give it up after that. They definitely wouldnt borrow on my account, nor act as guarantors. Thanks anyway.

Gorgeous_George

I think your parents would have to have the savings in a savings account with your mortgage company. They would noit receive interest and you would pay less much like an off-set mortgage.



GG

Mr_helpful

Peaches peaches
Obviously I dont know house prices in your area but have you thought about Shared Ownership, or even buying with your parents rather than as a guarantor so that they actually have their capital maintained. Just a couple of ideas.

peachespeaches

Even the shared ownership ones work out too expensive as the ones that come up (bearing in mind need 3 bed house) have mortgage and rent and when you add these together the monthly outgoing is too much. Ive been into this with my housing association.