How to help your grandchildren save for a house deposit

It has become common for aspiring homeowners to turn to the bank of mum and dad to realise their dream of owning their first home, but for some, grandparents can also have the assets to help them get onto the property ladder.

In fact, grandparents may have more resources at their disposal than parents that can be used to help the younger generation to buy their first home. Here we’ve looked at some of the most common options available to grandparents wanting to help their grandchildren onto the property ladder.

With savings rates low at the moment, grandparents with a significant amount of savings may want to gift some of their savings to their grandchildren to use towards a house deposit. Those considering this option need to be aware of the tax implications of gifting money, especially the rules around inheritance tax. Up to £3,000 can be gifted per tax-year without incurring inheritance tax and any unused exemption can be carried forward to the next year, but only for one year. More information about how to gift money without paying tax read our guide on giving cash gifts.

Another option could be to release property equity. A common way for grandparents to do this is to downsize to a smaller, cheaper home. Downsizing not only allows grandparents to free money they have accumulated in their property but moving to a smaller property will also often reduce outgoings as running costs and maintenance is usually cheaper.

For those who want to stay in their home, another option is to take out an equity release loan. Equity release allows homeowners to release equity built up in their home by taking out a loan against the property. This loan does not need to be repaid until the property is sold after the homeowner has gone into permanent care or died. Over recent years the equity release market has become much more competitive, resulting in interest rates falling and an increase in deals allowing flexibility, such as partial repayments or interest repayments. As well as this, it is now normal for equity release plans to allow drawdown, so interest is only added to the amount released. Saying this, equity release still has an impact on long-term finances and those considering this option should speak to an independent financial advisor first to ensure it is the best option for them.

Another way grandparents can help their grandchildren onto the property ladder is by helping them to get a mortgage. Some mortgage lenders will offer mortgages without a deposit - at a 100% loan-to-value (LTV) – normally in return for a family member acting as a guarantor by putting an asset against the mortgage. For example, Halifax has a 100% LTV mortgage deal offering a rate of 3.92% fixed until 30 November 2024, which requires a family member to put 10% of the agreed property purchase price into a three year fixed term savings account which is returned at the end of the three years along with interest, providing the mortgage payments are kept up to date. Grandparents should be aware that guarantor mortgages often come with the risk of if the repayments on the mortgaged home are not kept up to date it can result in them losing their asset, which in some cases could be their own home.

An alternative option to guarantor mortgages is a single income joint borrow mortgage. This mortgage allows a person with a single income to buy a property with their grandparents or parents agreeing to make repayments should the buyer fall behind with their mortgage repayments. The advantage to this type of mortgage is that the family member does not have to put an asset, such as their savings or home, against the property as a guarantee.

Those considering either of these options may want to speak to a mortgage broker first to discuss the advantages and disadvantages of each choice and whether any alternative options are available for their individual circumstances.

While many grandparents will want to help their grandchildren struggling to get onto the property ladder to buy their first home, whatever option they consider they should also factor in the long term impact helping grandchildren may have on their finances. For example, using savings may put grandparents who have retired in a financially vulnerable position if they have an unexpected expense, as they may struggle to re-build their savings. As well as this, providing financial support to grandchildren could risk grandparents struggling financially if they live longer than expect and their pension income runs out. As such, grandparents considering helping their grandchildren to buy their first home may find it worthwhile speaking to an independent financial advisor first, who will be able to highlight any risks involved and discuss the best options for their circumstances.