How to help your child get on the property ladder

It can be hard for young people to get a first foot on the property ladder. How can you help?

How to help your child buy a house

There are lots of ways you can consider helping your child get on the property ladder, from gifting or loaning them the money to using your home or mortgage to make things easier for them.

Think carefully before making any decision, as helping your child buy a home could have a significant impact on your finances in retirement.

What are your options for helping your child buy their first home?

Gift it from your savings

Perhaps the most popular way is with a financial gift, typically to boost the child’s deposit; boosting their borrowing power so they can get a better mortgage deal.

Your child doesn’t have to pay tax on the gift immediately, but could further down the line due to inheritance tax so it is worth thinking carefully before taking this route.

Did you know?

If you are giving a financial gift to a child towards their deposit and they are buying with a partner or friend you can protect the money in the event of a break-up with a declaration of trust. This declares who the money was gifted to, and if the break-up happens the document ensures your child retains the gift. This can change if they get married.

Loan them the money

If you think you’ll need the money further down the line, then you might consider loaning it.

A loan agreement is relatively simple to draw up. This should include any interest being charged and the payment period. It should also include crucial details like what happens if someone involved dies, or if you suddenly need the money back.

The loan should be declared to the mortgage lender

The loan would need to be declared to a mortgage lender, and this could have an impact as it needs to be factored into the lender’s assessment of affordability. Some banks may even refuse a borrowed deposit.

Use a family offset mortgage

Family offset mortgages allow you to offset your savings against a family member’s mortgage. This reduces the amount of interest they may have to pay.

Find out more about family offset mortgages at the Homeowners Alliance site here.

Be a guarantor on their mortgage

Guarantor mortgages allow you to act as a guarantor for your child’s mortgage debt. If your child is unable to make mortgage repayments it will be up to you.

Did you know?

A guarantor can sometimes be removed from a mortgage agreement later if the borrower can prove they are able to manage the debt on their own.

Buy it with them

A joint mortgage makes you and your child equally responsible for repaying a mortgage, and with your combined incomes perhaps you can afford to take on a larger one.

Tax implications of buying a property

The downside of shared ownership is that you may have to pay full stamp duty, and additional stamp duty will apply if you already own a property.

If it is your second home and you are still on the mortgage when the property is sold you may also have to pay capital gains tax on it.

Some lender will allow you to enter a joint mortgage without your name appearing on the property’s title deeds – which is a way around this.

Using equity release to help your child buy a house

You could consider releasing equity in your home to help your child buy a house. The money could also help boost your retirement fund or pay for home improvements.

A lifetime mortgage – the most popular form of equity release - allows you to release equity tied up in your home and release it in cash for you to spend however you want. The loan is repaid when you die or enter long term care, however you can choose to make payments towards the loan and its interest. Find out more about equity release.

Equity release reduces the value of your estate

It can have a significant impact on your finances in retirement and your ability to leave an inheritance. You must consult a qualified equity release adviser about your unique circumstances and suitability for equity release.

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