New Family Assistance Mortgages – Would You Risk Your Home For Your Children?

20th January 2017

The new ‘family assistance mortgage’ allows first-time buyers, or those purchasing a new home, to borrow 100 per cent of the value of a property, on the condition that the borrower’s parents allow a second mortgage to be taken out on their home, or any other property they might own.

On the one hand, it could be seen as though the children aren’t taking any risk, yet there’s a huge risk for their parents. Is it encouraging your children to get into debt they can’t afford in the first place? Or are you merely helping them onto the housing ladder? And if so, can they really afford the repayments?

The question for many parents is whether they are prepared to risk their own homes as security for their children to get that first step on the property ladder. 100 per cent mortgages used to be readily available but since the financial crash in 2008 they are hard to secure.

There are various options available. Some lenders are offering 100 per cent mortgages where the parents have to take out a second mortgage on their home as collateral. Whilst other lenders request the parents to put up 10 per cent deposit of their own property price as security.

It means that parents can help get their child onto the property ladder without having to stump up a large cash deposit. On the otherhand, it means that the parents are liable should the child’s mortgage fall into arrears and therefore risk their own credit rating taking a tumble.

In a recent article regarding the status quo of the Spanish property market, it has been that said parental guarantors are the biggest and saddest losers in the end. In a worst case scenario, the child loses their home, then goes to live with their parents and then they lose their home that they worked all their lives to pay for because it backed their childrens debts.

The good news is that there are options available to help children onto the property ladder but legal advice should be taken as there are risks involved and both parties need to fully understand the consequences if things don’t go according to plan.

Tony Freeman
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