Here’s everything you need to know about helping your children purchase their first property.
Gift a deposit
The most popular way parents help their children purchase a home is to make a cash gift towards a deposit. Most banks will accept a gifted deposit, but may ask for written confirmation that it is in fact a gift to ensure the money isn’t a loan that may affect your affordability calculations.
Parents and children are not required to pay tax on any money that is gifted, however should a parent pass away within 7 years it may be subject to inheritance tax, depending on the amount gifted.
You may choose to loan your children money for a deposit, in which case it’s advisable to draw up a loan agreement. This will set out a repayment schedule, any interest to be paid, what happens to the loan should anyone pass away and what happens should the property be sold.
The loan must be declared to the mortgage lender, as repayments will need to be taken into considerations for affordability calculations. However, some banks won't accept borrowed deposits at all, due to the additional strings attached.
Act as guarantor on a mortgage
A guarantor mortgage allows a close relative to act as a guarantor against the mortgage debt, essentially meaning you agree to cover the mortgage should your child fail to do so. You can then be removed from the mortgage once your child can prove they’re able to repay the debt themselves.
Get a joint mortgage
A joint mortgage is the perfect solution should you wish to take out a larger loan, as both your incomes will be taken into consideration.
The downside however is that if you already own your own home, then your child’s home would count as a second home, meaning additional stamp duty charges.
If you’re helping your children purchase their first home and need some help with the legal side of things, please contact our team for a consultation