Parents are increasingly shouldering the risk of their children’s mortgages as well as their own, despite government measures to help first-time buyers into the housing market.

Ministers announced a £1.6 billion property rescue deal last week, which included a stamp-duty freeze and a shared-equity scheme, where the government and housebuilders lend up to 30% of the value of a property interest-free for five years. Buyers find the remaining 70% from a lender.

Brokers dismissed the package as more spin than substance, however, and said parents will remain the first port of call for most first-time buyers, given that lenders are still discriminating against borrowers with small deposits.

Inquiries from parents looking to help children buy property by acting as guarantors have increased by 15% compared with last year, according to brokers Savills Private Finance.

Melanie Bien at Savills said: “Though the government’s package will help a small few, it’s likely parents will continue having to offer financial help to their children. It’s a risk for parents, especially as it looks like we’re heading for recession.”

The new shared-equity scheme, known as Homebuy Direct, is only available to 10,000 first-time buyers with a household income of less than £60,000, and looking to buy a new-build property. This is only a fraction of the 357,000 or so first-time buyers who enter the market each year.

Homebuy is also inferior in some ways to an existing shared-equity scheme Ownhome, though this ties you into a mortgage with Co-operative building society (see below).

The rescue package also included a 12-month stampduty “holiday” which began last week, allowing properties valued up to £175,000 to be exempt from the 1% levy formerly imposed on properties above £125,000.

The Royal Institution of Chartered Surveyors said: “Nine out of ten transactions will be unaffected by the band movement . . . at best the relief will save buyers £1,750, a drop in the ocean compared with the average £27,738 costs associated with buying a home, including a deposit .”

The stamp-duty saving could also be wiped out by house-price falls. The rate of decrease hit a record in August with the Halifax index recording double-digit annual drops for the first time. The cost of a home slid by 1.8% during the month, leaving the average property costing £174,178 — 12.7% less than in August last year.

If the slide continues at such a rate, any gains made from avoiding stamp duty could be wiped out within a month.

We assess the new schemes and look at better options for helping your children on to the housing ladder.

SHARED EQUITY SCHEMES

There are already shared-equity loan schemes on the market that offer a better deal than those in the new government proposals.

Ownhome offers a loan of up to 40% of a property at 0% interest for the first five years. Like the Homebuy Direct scheme, it is available to first-time buyers earning below £60,000.

However, the rate is only 1.75% after the first five years, whereas Homebuy charges 3%. The deal is also not restricted to new-build properties.

You do have to take a mortgage with the Co-operative bank to cover the remaining 60%, though, and its rates are not best buys.

You can, for example, get a five-year fix at a rate of 6.89% from the Co-op with a £899 fee. West Bromwich building society charges just 5.59% on its five-year fix, with a £999 fee.

The scheme can help 1,250 people annually and so far 450 have been accepted since it launched this year.

STAIRCASING

This is where you increase your stake in the property when you can afford it, in effect paying back some or all of the loan.

Shared-equity loan schemes have built-in negative equity protection because if the value of the property has fallen, you do not pay back as much.

If you bought for £200,000, you could borrow a maximum of £60,000 (30%) from the Homebuy Direct scheme. If in a year, prices had fallen by 10% to £180,000, you would have to pay back 30% of the new value, in this case £54,000 — £6,000 less than you borrowed.

Richard Morea of broker L&C Mortgages said: “While the borrower will have lost out as the value of their initial share had fallen, they are in a position where they can reduce the impact by buying an additional share at a lower market price.”

THE BANK OF MUM AND DAD

Homeowners today have collectively received more than £27 billion from their parents to buy their first homes, according to Abbey.

Last week, Skipton building society re-entered the first-time buyer market by offering mortgage deals that only require a 5% deposit — the first time it has offered this since February.

However the deal, called “Mutually Exclusive", will require parents to place a lump sum, based on 20% of the property’s value, into a Skipton savings account for the term of the deal. They cannot withdraw the money unless the first-time buyer can find a bigger deposit. A property valued at £100,000 would require £20,000 savings.

However, the rate from the linked savings account is only 4.85% — almost two percentage points lower than the best deals available. Bien said children would get a better mortgage deal if they were given the money instead — although of course you would not be earning interest in the meantime.

With a £20,000 gift, the above first-time buyer would have a 25% deposit so could access the two-year fix from Britannia building society at 5.44% with a £999 fee. Skipton, on the other hand, offers a rate of 6.60% fixed for two years with a £699 fee.

The mortgage would cost £340 a month with Britannia on an interest-only basis or £9,159 over two years with the fee included. With Skipton, it would cost £523 per month or £13,239 over two years with the fee included.

TRY BEFORE YOU BUY

If you are not sure of buying or need to save for a larger deposit, you could secure the property you want under a scheme known as “try before you buy”. This is run by the firm Places for People.

You can chose from nearly 60,000 homes around the country. You can rent for up to two years before deciding to buy. You can buy at any point during this period. If you do, you can use up to a year’s rent that you have paid as a deposit.

The value of the property is set when you start to rent so there is a risk of negative equity, although you can chose to leave the scheme after a year.

PARENTS AS GUARANTORS

Some lenders let first-time buyers take out mortgages with a close member of the family, allowing them to take account of a higher income when calculating how much to lend.

You can arrange the deal so the property is owned solely by the first time buyer, but the parents are liable for the mortgage if their child is unable to pay.

Bristol & West and Bank of Ireland have a scheme called First Start that works out how much you can borrow based on 4.5 times the parents’, or close relative’s, annual disposable income and one times the income of the first-time buyer.Bristol & West has a three-year fixed deal at 6.99% with an arrangement fee of £499.

Equity loan got us out of renting

Plumber Oliver King and his wife Stefany managed to secure a loan of £64,000 from the Ownhome scheme, allowing them to get a foothold on the property ladder by buying a house in Carterton, Oxfordshire.

The couple, who are both 28 and pictured here with their two-year-old son Ruben, have been waiting to buy for eight years and have been living in rental accommodation.

‘The prices in the area have just been going up over the past few years,’ said Oliver.

‘We thought we’d wait to see if things would come down, but that just made matters worse.’

Their new house cost £160,000, but the couple could only secure a mortgage of about £100,000.

‘We were getting desperate and noticed the Ownhome scheme just by chance,’ said Stefany.

The couple moved in five months ago and said the equity-loan scheme is the only way they could have got on to the property ladder.