A little family help

By webmaster 13 April 2012 | 1 minute read

Offering to be a guarantor can be a great way for parents to help their children into the property market sooner, but first there a few potential catches to be considered

Faced with high house prices and the rising cost of living, many would-be first time buyers are finding home ownership well and truly out of reach.

The difficulty is that while there are many young buyers who have the financial capability to service a loan, they simply can’t raise the sizable deposit typically needed to satisfy the banks.

If you have children who are in this position, with the right strategy and approach there is a way you can help them break into the property market sooner rather than later.

Putting yourself down as a guarantor will give your children the extra financial support needed to maximise their chances of meeting the requirements of their bank or other lender.

This simple process will allow you to unlock the equity built up in your own property and use this as collateral, helping your kids achieve homeownership sooner.

Best of all, this strategy does not require you to dip into any of your own savings or liquidate any assets, reducing the risks and financial strain for you.

Speak to a financial adviser or mortgage broker prior to seeking a loan as they are in the best position to advise you on the right approach.

While going guarantor can be a great way to help your children break into the property market, there are some associated risks of which you need to be aware.

When talking to your financial adviser or mortgage broker, be sure to discuss the circumstances in which you will be held accountable for loan repayments, how much of the loan you will be responsible for and for how long will you need to act as guarantor for the loan.

Once you have agreed to be a guarantor for your child’s mortgage, you will be held accountable for any late or delinquent repayments.

Before becoming a guarantor therefore, it will pay to look closely at your child’s current financial status and assess their ability to make the required repayments.

Traditionally, you would have been held accountable for the first few years of the mortgage; however, the exact period will ultimately depend on the lender and the size of the mortgage.

As the size of the mortgage decreases and the value of the property grows, you will be able to relinquish your support, allowing your child to take full responsibility for their home and mortgage.

Deciding to go guarantor on your child’s mortgage is a big decision and one which requires careful consideration.

But with the right approach and understanding, you can give your child a head start in life and place them in the right direction to secure their financial future.

A little family help
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