"With the way that house prices have shot up over the last couple of years, first time buyers are having to be more inventive than ever when faced with the prospect of taking their first step onto the property ladder.
"A recent idea to help first time buyers afford a mortgage is the concept of the parental guarantor. In a nutshell, this means that parents are named as parties on the mortgage deed, and are jointly responsible for repayment of the monthly repayment. This often allows the first time buyer to borrow more than they would be entitled to, or even to obtain a mortgage where they would otherwise be refused.
"A recent poll by the over fifties website www.fiftyconnect.co.uk suggests that 63% of its members intend to assist their children to buy their first home. And some lenders have even launched products that are designed to assist with this desire to help their children onto the property ladder.
"For example, a short while ago the Bank of Ireland unveiled its 1start product. This is a so-called combi mortgage that takes an aggregate of the net available income of both the parent and child to increase the amount that can be borrowed. This is genuinely a positive step and, as well as
offering a higher available amount of net borrowing, provides class leading income multiples of four times parental income plus four times the child's salary.
"It's also worth considering another new product on the market, aimed at first time buyers. So-called 'Family Offsets' are becoming an increasingly popular way for relatives to help other family members gain a footing on the property ladder.
"They work in the same way as a conventional offset mortgage - in other words by 'offsetting' the balance outstanding on the home loan with accumulated savings, kept in the same 'pot' as the mortgage. The key difference with a family offset, however, is that the savings are placed by - and belong to - a family member other than the borrower.
The savings in the 'pot' cannot be accessed by the borrower, nor indeed by anyone other than the saver so, in this case, the female partner's parents would be able to have access to their own funds at any time, but must be made aware that if they draw funds from the account, this will have a direct effect on the amount against which the mortgage can be offset.
Because the savings deposited are offset against the interest chargeable on the mortgage balance, they can have a substantial effect on the term remaining on the mortgage. The potential downside that needs to be pointed out though is that the monthly repayments are initially calculated on the basis of length of the original term. The lump sum deposit is then applied to the debt, but only goes to reduce the remaining term of the mortgage, not the actual monthly cost of the loan.
"Buying with friends is another option that is worth looking into, and there are plenty of mainstream lenders will be delighted to consider suitable applications. Having said that, they usually deal with parties that are related in some way, although there's nothing to stop friends applying in exactly the same way.
Each applicant will have to go through a credit scoring exercise, which is a standard procedure for anyone applying for a mortgage. Importantly, you must remember that all parties are jointly and severally liable for all the mortgage. This means that you will remain liable for the whole of the
mortgage debt, unless and until the lender agrees to remove you from the mortgage deed. So, if the mortgage falls into arrears, the lender can take action against any one of the applicants/borrowers.
"Traditionally, lenders have offered up to 95% of the value of a property, depending on its condition, and the applicant's status. This is known as the loan to valuation ratio. However, some lenders will offer first time buyers up to 100% of the purchase price, enabling the borrower to use any money they have saved up towards furnishing their home.
"Because of the greater risk involved to the lender, these loans tend to be at a slightly higher interest rate, and hence more expensive than conventional 95% mortgages, however.
"So, in summary, there are a number of innovative solutions to the problems faced by first time buyers. The important thing to remember is that there is no substitute for sound financial advice from a reputable broker."
