Get a home loan leg-up from the folks

First-time buyers have long been struggling to get on the property ladder, but their plight looks set to worsen. An upturn in the housing market has already pushed prices even further beyond the reach of potential first-time buyers, says the Royal Institution of Chartered Surveyors, forcing many to continue to rent. Its latest quarterly letting survey showed the biggest rise in tenant demand for four-and-half years. Now the National Association of Estate Agents believes rising council tax and utility bills will be the 'final straw' for struggling youngsters.

In spite of all this, many twenty-and thirtysomethings are still finding ways to buy - many with the help of parents who have made money on their own properties over the years.

How parents can help

· If you can afford it, one of the best ways to help is to contribute towards your child's deposit. Even a 5 per cent deposit can help to avoid mortgage lenders' higher lending charges, which are typically applied to loans above 90 or 95 per cent.

Melanie Bien, associate director at mortgage broker Savills Private Finance, says giving your child a gift of cash can have the added advantage of reducing your inheritance tax (IHT) liability: 'There are several ways you can do this: one is via a potentially exempt transfer (PET), where you can give away substantial sums of money without incurring tax as long as you survive for seven years from the date of the gift. Otherwise, your dependants face an IHT bill.

'Also worth remembering is the fact that gifts up to the value of £3,000 can be given in any tax year. You can also take advantage of any unused balance from the previous year, allowing a maximum £6,000 gift. There is no IHT payable on this even if you die within seven years.'

· If you can't afford to give your child money for a deposit, you may be able to lend it to them. Hugh Grime, 24, and his girlfriend, Laura, have just bought their first home - a three-bedroom, mid-terrace house in Middlesbrough - for £116,000. Hugh's parents lent them the 5 per cent deposit they needed.

'It was out of their funds for retirement, so we are paying it back. At the moment we pay them around £70 a month on the understanding that this will increase as our earnings grow,' says Hugh, who is training to be a solicitor. Laura is a teacher.

The couple, who researched the buying process on firstrungnow.co.uk, took a first-time buyer's mortgage of 3.5 times their joint salaries with the Yorkshire building society. They extended the loan to 30 years and pay £610 between them a month.

· An increasingly popular route to a first home is to ask parents to act as guarantors on a mortgage. The guarantor's income will have to be enough to cover any of their own remaining mortgage and, typically, the shortfall on their offspring's loan. However, Ray Boulger of mortgage broker Charcol says parents should be aware that while, in underwriting terms, they only have to guarantee the shortfall, legally they are guarantors on the whole loan.

Scottish Widows offers good guarantor mortgages on 100 per cent of the value of the property for graduates and a limited number of professionals, says Boulger, and it doesn't impose higher lending charges. Professionals can get a two-year tracker at 0.5 per cent above the bank base rate (BBR), while graduates can get 0.75 per cent above BBR.

· For more ideas, go to parentaidnow.co.uk, a website aimed at parents and grandparents of those looking to buy for the first time.

How to help yourself

· One option is to take out a mortgage over a longer period than the traditional 25 years, or to take out a loan on an interest-only rather than a repayment basis. The latter can be a good option for those who expect to see their income rise rapidly or who have expensive debts to pay off first. A £100,000 mortgage at 5 per cent, assuming interest is charged on a daily basis, would work out at £585 a month over 25 years. This would fall to £537 if the loan were for 30 years. On an interest-only basis, this would fall to £417.

·More people are clubbing together to buy with siblings or friends. This has the obvious advantages of sharing the deposit and the cost of the mortgage, but you should consider buying on a 'tenants in common' basis. This allows you to split the property up into whatever size shares you want, avoiding rows when the property is sold.

·In shared-ownership or shared-equity schemes, the buyer takes out a mortgage on a fraction of the property - typically starting at 25 per cent - and pays rent on the rest to a third party such as a housing association until they can afford a bigger stake. The Chancellor confirmed in his pre-Budget report in November that a small number of mortgage lenders would be offering shared-equity loans, where the cost is split between the mortgage company and the buyer.