How to help your child get on the property ladder
With houses prices rising faster than wages in many areas, it's harder than even for young people to get a first foot on the property ladder. How can you help?
How to help your child buy a house
As well as valuable advice and guidance, what first-time buyers need more than anything is money. According to property website, Zoopla, the average deposit paid by a first-time buyer is £34,500.
Even with the government bonus on a Lifetime ISA, that's a lot of money to save.
So, it's unsurprising that more people are looking to family members for financial support.
That support could be as simple as gifting or loaning them money, offering a rent-free spare room, acting as a guarantor on a no-deposit mortgage or using your own 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 own finances, especially if you're retired or close to retirement.
Let's look at some of your options.
Gift it from your savings
Perhaps the most popular way is with a financial gift, typically to boost the child’s deposit. This will also have the advantage of 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 give a money to someone to go towards their deposit and they're 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.
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 you'll need to make the payments for them.
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
First-time buyers usually don't need to pay stamp duty. So, a downside of buying with a first-time buyer is you may have to pay full stamp duty, if you've owned before and extra stamp duty if you still own another property.
If it is your second home and you're still on the mortgage when the property is sold you may also have to pay capital gains tax on it.
You can potentially get around this if the lender is prepared to let you 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. You could also use the money to 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 or you can choose to make payments towards the loan and its interest.
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.
We can help
Find out more about using equity release to help your loved ones in a free initial consultation, where we can answer any questions you may have.
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Important: The loan amounts above are an illustration of the amount you could borrow. The actual amount may vary depending on your individual circumstances. The figures are not guaranteed and do not constitute an offer to lend. The loan amount will need to pay off any existing mortgage secured against the same property.
You may also be interested in:
How long does equity release take?
A lifetime mortgage application usually takes between five and eight weeks in total.
What is equity release and how does it work?
Equity release can help you turn your property into valuable retirement income or release a lump sum to help younger family members.
How much does equity release cost?
Find out about the interest rates, set-up costs and arrangement fees involved in equity release.
Equity Release Insights
Find out how it works, how much it costs, how long it takes and how it could work for you in our dedicated hub.