First Time Buying With Your Parents: Case Studies
By admin
Issued on behalf of Griffiths Ings Solicitors
Case Study 1:
John is a graduate, aged 28, earning £30,000 a year. He hopes to borrow £110,000 to buy his first home. His father owns his own home and is still working. The lender will provide John with the money on the basis that his father stands as guarantor. After two years of making regular mortgage payments, John’s salary should have risen by £5,000 when the lender will allow the father to be released from his obligation as mortgage guarantor. John has made it onto the property ladder by using his father as a guarantor. His father is delighted to have enabled his son to get on the property owning ladder – without having to put his hand in his own pocket.
Case Study 2:
Sarah has just qualified as a nurse. Her parents would like her to get on the property ladder as quickly as possible, but her income is not enough to enable her to borrow sufficient money to buy her first home. Her parents have their own home with a small mortgage. Their existing mortgage lenders have decided to offer Sarah a mortgage on condition that her parents are also named on the mortgage deed and property deeds. As it is the same lender for both properties, they will advance 100 per cent of the purchase price of the property. Neither Sarah, nor her mum and dad, will have to find a deposit either as the lender is happy to rely on the security of both properties. In cases like this a Deed of Trust should be put in place to all buyers are all aware of their legal rights.
Case Study 3:
Michael is 30 years old and has been living in rented accommodation, saving madly for a deposit for a house. But despite saving hard, rising property prices mean he’s always one step behind in gaining a foothold on the housing ladder. His parents have decided to help and offered Michael £10,000 from their retirement savings – money he will need to repay to help them in their retirement. To enable Michael to borrow enough to buy a property his parents have agreed to be named, with their son, on the mortgage deed and property deeds, which means both lenders will be happy with the inclusion of the £10,000. Michael’s parents have the security of knowing they are protected under the terms of a Deed of Trust, which not only gives them some control over the property but also guarantees them the ultimate repayment of their £10,000. The beauty of a Deed of Trust is that it can also be used to minimize – or in many cases – eradicate any potential Capital Gains Tax liability for the parents in respect of their joint ownership of their son or daughter’s property.
Case Study 4:
Jenny is in her second year of university. Her parents do not want to pay rent to university landlords and have decided to buy a house for their daughter to live in while she is studying for her degree. Her parents have owned their own home for many years and do not have a large mortgage. However, they don’t have any money to put down as a deposit. Their existing lender has agreed to nominally increase the mortgage on their existing home to create a notional deposit and to provide sufficient money to fund the second property. The only condition is that both the parents and Jenny are named on the second house legal title and mortgage deed. Neither Jenny, nor her parents, have had to find any cash for a deposit, and a simple Deed of Trust can protect the parents’ equity in the second home. Once Jenny finishes her studies and finds a job she can takeover the mortgage payments and eventually own the property in her own name.
