Getting on the property ladder can feel like a daunting task for first-time buyers. With the average time to save a house deposit nearing 10 years (18 years in London), homeownership might sometimes feel out of reach. But with a Deposit Boost, you could make your dream of owning a home a reality sooner than you think.
A Deposit Boost is a type of buying scheme that allows loved ones like parents or grandparents to help give you a leg up on the property ladder, without needing to dip into their cash savings, investments, or pensions. Here’s how it works, some key benefits, and considerations to help you decide if it’s the right option for you.
How a Deposit Boost works
A Deposit Boost involves two mortgages. A home-owning loved one, like a parent or close family member, secures a small mortgage against their own property to release funds. This could be done through:
- An interest-only retirement mortgage to keep monthly payments low.
- A standard remortgage for accessing equity in their property.
The proceeds from this mortgage are then gifted to you as part of or your whole home deposit. From there, you’ll arrange your own mortgage, with a boosted downpayment thanks to your loved ones’ gift.
Key benefits of a Deposit Boost
1. Get on the property ladder faster
Saving for a deposit can take nearly a decade, but through a Deposit Boost, your loved ones can help you secure your first home sooner by speeding up your time to save.
2. Increase your budget
A larger deposit doesn’t just mean more up-front equity in your property. It can also increase your overall budget, potentially giving you access to homes that were previously out of reach.
3. Access lower interest rates
If you use your boosted deposit to purchase the same priced property, the extra money you put down will reduce what you need to borrow for a mortgage. This will not only reduce your overall loan size, but could also give you access to lower interest rates. Lenders see larger deposits as lower risk, so by putting down a larger downpayment you could get more favourable interest rates. This could save you thousands over the lifetime of your mortgage, making your monthly payments more manageable.
4. No cash savings needed from your Booster
Unlike traditional support that may require cash savings, the money is unlocked from your Booster’s property equity. This means they don’t need have savings, pensions, or investments to use in order to help you buy!
5. No financial links between you and your Booster
Both mortgages are kept entirely separate, meaning your financial health won’t affect your Booster’s, and vice versa. If one party misses a repayment, the other is not liable.
6. Potential to reduce inheritance tax
By gifting you money earlier in life, your Booster could reduce their future inheritance tax liability. This is because they are releasing money from their estate, which could give your Booster peace of mind if they are concerned about how much of their assets will be taken by the tax man when they die.
Things to consider before using a Deposit Boost
While a Deposit Boost can be a fantastic solution, it’s essential to weigh the potential challenges before moving forward:
- Risk of repossession
Like any mortgage, missed repayments by you or your Booster can result in serious consequences, including repossession of your property or theirs.
- Eligibility requirements
Boosters must pass a credit check and demonstrate their financial ability to make repayments in order to be approved for the small mortgage needed for a Deposit Boost. If they have significant existing borrowing or low income, they may not meet the criteria.
- Mortgage limitations for Boosters
If your Booster still has a mortgage on their property, they’ll need to have at least 50% of it paid off. This can particularly impact those nearing retirement or with limited equity.
This blog post has been written in partnership with Tembo. For more information or to book a call with Tembo, click here.
Your home may be repossessed if you do not keep up repayments on your mortgage. Always be sure to seek professional tax advice.