What's the best way for me to get a deposit for my son? 27 February at 12:06PM in Mortgages & Endowments 16 replies 661 views

KANGIN

My graduate son (24) is about to start work for a blue chip company in York. He had planned to rent a flat (roughly £650 per month) but we're now talking about him buying a two bedroom terrace, which would cost about £200,000 and renting out a room to another young professional. This would halve the cost of his £850 (approx) mortgage We're very concerned about the soaring houses prices in York and think it is a good idea to get him on the property ladder.
But I would need to give him the £20,000 deposit and I don't have that amount of spare cash lying around.  I'm 59 and debt free (apart from a small amount on my credit card) and I paid off my own mortgage years ago. I receive a widow's pension, a teaching pension and also have a lucrative second career that provides me with a very high level of monthly income. I am confident that most money lenders would give me a short term loan of £20,000 once they see my tax returns but I am not sure where to turn. I also know that he will pay me back - plus interest. His father died years ago, and at some point in the future he is due to inherit a significant amount from his elderly paternal grandmother.
My questions are these: where is the best place for me to turn to get £20,000 I would need for his deposit? Would a mortgage company still consider loaning the amount to me even though I've now repaid my own mortgage? And can you see any pitfalls with this approach? Any advice will be gratefully received.
He had always planned to wait until he received his inheritance before moving onto the property ladder, and for this reason neither of us had ever discussed the issue before. But things are changing so fast in the property market and the rents in York are high.

Walker1

I’m no expert, but will your son be able to get a 180k mortgage? As in will the banks be willing to lend him that much based on his earnings?

KANGIN

TBH I'm not sure - I hadn't thought about that. He'll be earning about 30K. If not, would sharing the ownership of the property with him work? 

couriervanman

I could be wrong but......he cant afford it

Browntoa

There's rumours of government backed deposit system in the budget .

5% but you need to be able to qualify for the 95% mortgage

K_S

@kangin Here are a couple of options -

- Your son could apply for a 100% LTV mortgage where the 'deposit' is replaced by the lender placing a collateral charge (usually for 20-25% of the required mortgage) on your house. This is one route taken by parents who want to help their kids but don't have cash to gift them.

- You could take out a personal loan / secured loan / small mortgage against your house and gift it to your son to use as a deposit. Or use it on one of the savings deposit family assisted mortgages where you don't gift it to your son but deposit it in a lender's savings account which can be withdrawn at a later point when your son has sufficient equity in the property.

There are plenty of options out there, I would recommend getting in touch with a broker if you decide that this is the way to go.

yksi

I would honestly advise caution here overall. Taking ANY notice of currently-soaring property prices right now and using that as the reason to rush is a bad idea; things are not stable while Covid-19 is still front and centre and you might find it falls ten percent before the end of the year. The amount you're talking about spending on a property is madness for someone who doesn't have any deposit saved and makes me ask two questions. Is this his first permanent job in his field, and take an unbiased view on this, should you really be handing a huge amount of money to someone who has not managed to save any deposit for himself?

I ask this not to be heartless or unfair to your son, and yes, you know there's an inheritance coming so you can both afford it, but take a realistic look. Someone who has saved nothing has not demonstrated that they can manage money effectively, and is very unlikely to be able to handle the financial responsibility of owning and maintaining a home, and keeping up with repayments. You can double that risk if they also haven't held down a permanent job very long. It is not through being irresponsible, but by having a lack of experience. There is a LOT of learning to be had by living in a rental, getting to grips with your budget and putting away even £100 each month.

Everyone thinks their kid is the exception, but there is a reason that he cannot take out the mortgage on his own. Banks have data on thousands of customers who were in the same situation as him, and they know that the risk of default is too large for them to put their money down. As his parent you're of course willing to take more of a risk because you love him; but don't discount the intelligence of the banks and their caution. Perhaps you could discuss "Plan B" of him renting for 6-12 months, saving a little bit into a deposit, and watching how the market looks.

ACG

£30k income will mean he can get a mortgage of £135-150k. 
You probably need to sit down with a broker, there are ways in which this might work but the devil is in the detail. 
Also a lot of lender would have issues with the deposit, both in terms of it not being a gift (ie it will be paid back and with interest - thats not a gift by any stretch of the imagination), and some lenders would have an issue that you have taken out a loan to lend/gift to your son. 

your options will be slim, but if you get it wrong you could find yourself wasting time and money. 

hippocrates1

You can’t use loans as deposits. And gifted deposits should be gifts. The banks won’t lend if they find out you want the money back. Also what if he hates his new job. Let him rent for a few years. It’s much safer.

K_S

hippocrates1 said:

You can’t use loans as deposits. 

@hippocrates1 That is accurate as a general statement but not a blanket rule. For example Santander and Saffron BS are two lenders who will consider a borrowed deposit.

csgohan4

buying a house at all costs is false economy, buying a house has it's own costs which is not included in the mortgage. 

I think the question is, are you wanting to buy a house or is it your son? Using your FTB status on a house you regret buying is not the best start