I’m 68 with the majority of my funds held in both a business and in my pension. My home is worth around £600,000 and owned outright.
I would like to help my daughter buy her first home by giving her the money she needs for a deposit.
I have already taken the 25 per cent tax-free element out of one of my pensions.
![Mortgage help: Our weekly Navigate the Mortgage Maze column stars broker David Hollingworth answering your questions](https://topnews.media/wp-content/uploads/2024/02/78864195-13108903-Mortgage_help_Our_weekly_Navigate_the_Mortgage_Maze_column_stars-a-18_170852700425.jpeg)
Mortgage help: Our weekly Navigate the Mortgage Maze column stars broker David Hollingworth answering your questions
The challenge is that if I draw out, say, £40,000 from either of these sources I will have to pay tax on it at the higher rate.
As an alternative are there mortgages for older people – a form of equity release – that can be used to raise the money?
The security would be the house and a pension pot of over £500,000. The mortgage could then be paid off over, say, five to ten years using funds drawn at a level which keeps them below the higher tax threshold.
SCROLL DOWN TO FIND OUT HOW TO ASK DAVID YOUR MORTGAGE QUESTION
David Hollingworth replies: Conditions remain extremely difficult for first time buyers in the current market.
House prices have eased to a degree but in many cases, it’s hardly denting the big rise in prices driven by the high demand over the pandemic period.
Higher interest rates have only added pressure to first time buyer budgets and affordability.
With high house prices comes the need for a substantial deposit. Even though there’s a strong range of mortgages on offer to those with as little as 5 per cent to put down, all too often there will be a need for a higher deposit to make up the difference between the maximum borrowing available based on their salary and the purchase price.
> How to remortgage your home and find the best deal
Is a deposit needed?
There are even some mortgages that allow a first time buyer to borrow much as 100 per cent of the purchase price.
There will generally be more complexity to how these different deals operate but it could be worth considering whether there may even be a solution that doesn’t require a deposit to be put down.
The Skipton Track Record mortgage, for example, would rely on your daughter being able to demonstrate a history of paying a higher rent than the mortgage payment, as well as showing that the mortgage would be affordable on her income.
![On the up again? House prices have eased to a degree but in many cases, it's hardly denting the big rise in prices driven by the high demand over the pandemic period](https://topnews.media/wp-content/uploads/2024/02/80955855-0-On_the_up_The_average_house_price_in_January_was_291_029_up_1_3_-a-2_1708520697268.jpg)
On the up again? House prices have eased to a degree but in many cases, it’s hardly denting the big rise in prices driven by the high demand over the pandemic period
Other lenders such as Buckinghamshire BS and Loughborough BS offer schemes that can lend up to 100 per cent of the purchase price but use equity in the parental home as additional collateral for the mortgage.
There would still be a need to demonstrate that the mortgage would be affordable based on your daughter’s income.
Although some lenders will allow parental income to be used to boost the borrowing amount, there could be constraints on the maximum mortgage term due to age.
> True cost mortgage calculator: Check what a new fixed rate would cost
Mortgages for older borrowers
Lenders have become more flexible in their options for older borrowers. They have always been able to consider lending into retirement, but they will often impose a maximum age at the end of the mortgage term.
That can often be capped at 75, but there are now more lenders that will consider lending to 80 and 85 which could be enough to meet your requirements.
Some lenders will be able to consider lending to an even higher age depending on the individual circumstances.
This would effectively allow a traditional mortgage to be taken, with the lender wanting to be sure that the property would be adequate security and that the mortgage would be affordable.
Pension income should be acceptable to demonstrate that affordability.
> What next for mortgage rates and should you fix for two or five years?
Retirement interest-only mortgages
An alternative option that would potentially give you even more flexibility on the term of the mortgage would be a Retirement interest-only (Rio) mortgage.
As the name suggests, the monthly mortgage payments would only cover the interest on the mortgage, not the balance – but there is also no defined term.
Instead, the mortgage would be repaid on sale, on death or on a move into long term care.
There is still a monthly payment to meet, so there is a need to demonstrate adequate income for the mortgage.
A number of Building Societies such as Leeds BS and Nottingham BS offer RIO mortgages as well as some specialist lenders like Livemore, Perenna and Hodge Bank.
If meeting monthly payments may prove difficult then it would make sense to explore equity release solutions like a lifetime mortgage.
This would allow you to tap into the equity of the property but rather than having to maintain monthly payments, the interest would roll up over time.
In summary there could be options available, and it would be worth considering initially whether you can enable your daughter to buy without the need to take a mortgage against your home.
There are a number of reasons that may not work for you, in which case using a mortgage to raise the funds could also be a possibility – subject to affordability being met.
You would then need to consider the cost of any borrowing to make a judgment, and take advice on how that would compare to the potential cost implications of releasing cash from other sources.
NAVIGATE THE MORTGAGE MAZE
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.