What is the best way to buy a flat if my family is paying a £50,000 deposit?

23 February 2015

Q

I am 26 years old and currently rent in London. My mother is keen for me to buy in the near future and is willing to stump up £50,000 to help towards the deposit. I have no savings of my own and earn £26,500 a year. What would be the best thing for me to do? I am open to living by myself or renting out a room in a two-bedroom flat but I have no idea how to investigate my options. Is it a good idea for her to be named on the mortgage?
From
HM/London

A

Having a good deposit is a crucial element for any first-time buyer and especially so for those looking to buy in the capital.

The size of deposit as a percentage of the purchase price will play a big part in the mortgage options open to you. The bigger the percentage your deposit represents, the better the rates on offer.

When looking at the size of deposit, be sure to factor in other costs such as survey and legal fees, and stamp duty.

You will then need to get an idea of how much you can borrow on a mortgage, in order to see if it will be adequate to meet the kind of purchase price you are looking at.

The days of lenders applying bog- standard income multiples to all borrowers are over. Now lenders will look not only at your income but also how you spend your money. That will mean questions around your monthly budgeting, looking to establish your commitments, including not only loans and credit cards but also extending to things such as utility bills and travel costs.

It makes sense to get a good idea of how your monthly commitments break down and then speak to an adviser to see if the numbers stack up to result in the kind of borrowing that you are targeting.

If you fall short, it might be possible for your mother to provide further help with her income, by being a joint applicant. That needs to be considered carefully by you and your mother.

She would be jointly liable for the mortgage and as it is not her main residence there could be a capital gains tax liability when it is sold. In assessing whether that might be an option, it, again, makes sense to take some independent financial advice on your options.