New first-time mortgage counts parents' income

Parents who are keen to help their children on to the housing ladder are to be offered a new scheme by Norwich & Peterborough building society.

The Lend a Hand scheme, which will be available from August 22, allows parents to boost the amount their offspring can borrow by putting up their income to cover part of the loan.

The first-time buyer - or buyers - must earn enough to borrow 75% of the cost of their new home, but any more they need to borrow can be backed by a willing parent, who can increase their mortgage by an amount equivalent to their salary.

For example, a parent earning £26,000 a year could add that amount to the mortgage their child is able to raise alone, increasing the amount they have to spend.

The parent does not actually have to hand over any money, and their name will not appear on the legal title of the property, but they are jointly responsible for the debt.

Although in some cases the owner will make the monthly mortgage payments themselves, this means if they default on the loan, the parent must repay it.

When the son or daughter is earning enough to take on the full mortgage, he or she can do so without penalty.

Borrowers can choose from any of the society's mortgage deals, except its offset scheme.

Alison Rolls, a spokeswoman for the society, said its five-year fixed-rate deal was expected to prove popular among those using the scheme.

"We think probably the child is going to want to take over the mortgage in may be four or five years time - we envisage that after that kind of time they will be sorting themselves out," she said.

"The five year fix would give them stable payments those first five years, but it would not be too long to lock in for, which the 10-year fixed rate might be."

From August 18 the five-year fixed rate will be set at 4.98%. The deal offers loans of up to 90% of the value of the property and borrowing of up to 4.25 times a single borrower's salary and 3.25 the joint income of two buyers.

Although parents who wish to help their children buy a property using the scheme will be restricted by the society's standard maximum age restrictions, which generally require a mortgage to be paid off by the time the borrower reaches 75, Ms Rolls said she thought it unlikely this would pose a problem for potential customers.

Dev Malle, an associate director at mortgage broker Pink Home Loans, described the deal as "a breath of fresh air".

"It is brilliant to see that a lender is looking at innovative ways to help first-time buyers and not looking to stretch first-time buyers' incomes," he said.

"This is a prudent way to help borrowers as the child needs to support 75% of the loan in their own right and the parent is only putting up their basic salary and the building society is taking into account the affordability of the parent."

He said parents who had worked hard to pay their own mortgage may not be willing to effectively take on more debt, and that the risk of the child defaulting was a potential pitfall, but for many families the deal would be a good thing.

Norwich & Peterborough is not the first lender to offer a package for first-time buyers and their parents.

Last year Bank of Ireland launched the 1st Start mortgage which allows parents to use their income, less any mortgage repayments, as the basis for their child's mortgage. The buyer's salary is added to a multiple of the parent's remaining income.

Ray Boulger, senior technical manager at mortgage broker John Charcol, said the Bank of Ireland mortgage would offer the largest mortgage, but for those looking to borrow less than 90% of the purchase price of a property, the range of deals available through the Norwich & Peterborough scheme meant it was more competitive.

He added: "It is always good when a lender looks at what someone else is doing and builds on it."