Using Property as Collateral

Deciding whether to put your own home up as security for your son's mortgage is a significant decision that involves weighing both financial and personal considerations. 

100% Mortgages 

There are a few lenders now who are prepared to lend up to 100% of the purchase price if the applicant can afford the mortgage and their parents allow a charge to be registered on their own property as additional security for the loan, these are known as family assist mortgages.  The terms of the guarantee differ slightly with each lender but what they all amount to is your home could be at risk if your son does not keep up the mortgage payments. 

When Could Your House Be at Risk? 

The guarantee will be called upon if your son defaults on his mortgage payment and so you need to be sure that he is not borrowing above his means and that you are able to step in and make payments for him if he finds himself in a position where he can no longer afford to.  You also need to be aware that there is no guarantee that house prices are going to rise and if and when he comes to sell there may be a shortfall on the mortgage which you may become liable for. 

You must not agree to put your home up as collateral for his mortgage until you have taken independent legal advice and are comfortable with what you are committing yourselves to. 

Here are some factors to consider: 

1. Risk – putting your home up as security for your son's mortgage exposes you to risk. If your son defaults on his mortgage payments, the lender could foreclose on your home, potentially leading to the loss of your primary residence. Assess whether you're comfortable with this level of risk  
2. Legal implications - consult with a legal professional to fully understand the legal implications of using your home as security for your son's mortgage. They can explain the potential consequences and ensure you understand your rights and obligations  
3. Relationship dynamics - consider the impact this decision may have on your relationship with your son. Money matters can sometimes strain family relationships, so ensure that everyone involved is on the same page and understands the potential risks and responsibilities  
4. Alternative options - explore alternative ways to help your son purchase his first home without putting your own home at risk. For example, you could provide a gift or loan to help cover the deposit which may not require putting your home up as security  
5. Financial stability - evaluate your own financial stability and long-term plans. Consider whether you have sufficient resources to comfortably support yourselves in retirement, even if unexpected financial challenges arise  
6. Exit strategy - if you decide to proceed with using your home as security, ensure there is a clear exit strategy in place. Determine how and when the security arrangement will be removed once your son's house has gained enough equity to satisfy the lender's requirements  

Ultimately, the decision to put your home up as security for your son's mortgage is a personal one that depends on your individual circumstances, risk tolerance, and family dynamics. It's important to carefully consider all factors and seek advice from legal and mortgage broker before making a decision. Call us on 0330 433 2927 for more help and information.