20 August 2019

How to get a 100% Mortgage

The continual rise of house prices has caused problems at the bottom end of the market. First time buyers in particular find it difficult to raise enough capital for a deposit, while more restrictive (more sensible?) lending rules mean that obtaining a mortgage is more and more of a challenge.

On the other hand things are becoming easier at the other end of the age range. Equity Release plans are becoming ever more popular, with more lenders entering the market offering a wider range of cheaper products - that means lower interest rates in this context. There are also the new Retirement Interest-Only mortgages (RIO).

Combining those two facts leads to the possibility of mum and dad (or grandma and grandad) taking out an equity release plan in the form of a lifetime mortgage or RIO mortgage on their own property. That would raise a sum of money which could then be lent to the children to cover all or part of the purchase of their own house.

The children could cover the interest payments out of their own income ensuring that the parents or grandparents were not out of pocket, while being more secure than if they had relied on a traditional lender.

The capital could either be seen as a long term loan, or perhaps as an advance payment from the parents' or grandparents' estate. Depending on the situation it could even be used to reduce an Inheritance Tax liability.

I would recommend a brief written agreement to ensure that all parties had the same understanding - this is a long term arrangement, after all, and it would be easy to forget what was agreed.

Some creative planning is certainly possible, but all the options, pros and cons need to be considered, so professional advice is important.

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