How to help your child get on the property ladder

How can parents help their kids buy their first home?

helping kids onto the property ladder

It’s harder than ever for first-time buyers to get a first on the property ladder. Despite low mortgage rates, rising house prices mean the deposits required are out of the reach of many young people.

Many parents want to help their kids onto the property ladder. Beyond teaching them about money when they’re young, what are the best ways to help?

Give them the money

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

Kids don’t have to pay tax immediately on the gift, but could further down the line due to inheritance tax. In the 2019/2020 tax year you can gift up to £3,000 each year that is free from inheritance tax, and you can carry over unused gift allowance from  a previous year.

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’re going to 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 would need to be declared to a mortgage lender, and this could have a significant impact as it needs to be factored into the mortgage repayments. Some banks mat even refuse a borrowed deposit.

Use equity in your home as a security

You can use some of the equity in your home to secure the loan against. If they are unable to keep up payments and end up defaulting on the mortgage you would be liable for part of the loan and this could put your home at risk.

Family offset mortgages

Family offset mortgages allow you to offset your savings against a family member’s mortgage. This reduces the amount of interest your child has to pay. The downsize is that you can’t access your savings (however much of it you choose to offset) until the term is up.

Find out more about family offset mortgages on 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 it will be up to you.

A guarantor can sometimes be removed from a mortgage agreement later if they can prove they can 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 mortgage.

The downsize of shared ownership is that you will be liable for full stamp duty, assuming the property price is above £125,000. There is a discount scheme for first-time buyers as long as the property is bought for £500,000 or less.

If it is your second home and you are still on the mortgage when the property is sold you may 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.

Use equity release

If you don’t have the savings to give a financial gift and don’t want to borrow against your property, you could consider releasing equity in the home. The money could help boost your retirement fund as well as help your child onto the property ladder.

Equity release through a product like a lifetime mortgage allows homeowners to borrow money against the value of their property, and opt to make no payments on it during their lifetime. Instead, the capital and interest can be rolled up and paid back from the sale of the home after both parents die or go into residential care.

OneFamily Advice offers advice on lifetime mortgages. To find out more watch this short video full of information from our two of our own financial advisers about how taking out a Lifetime Mortgage can be used to help your kids onto the housing ladder.

You should get advice before helping your children buy a home as it can have a significant impact on your own finances in retirement.

Note: We take care to ensure Talking Finance content is accurate at the time of publication. Individual circumstances can differ so please don't rely on it when making financial decisions.

Find out if a lifetime mortgage is right for you

OneFamily Advice can help you find out if a lifetime mortgage is right for you. We charge a simple fixed fee of £750 for our advice, only payable if you accept our recommendation, and offer a free initial consultation with one of our advisers.

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