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How to help your child buy a home

With high prices and high deposits, it’s no wonder that many young people turn to the bank of mum and dad when trying to buy their first home. 
 
Here’s a look at how you can help your child climb onto that first, all-important rung of the property ladder.

With high prices and high deposits, it’s no wonder that many young people turn to the bank of mum and dad when trying to buy their first home. 
 
Here’s a look at how you can help your child climb onto that first, all-important rung of the property ladder.

Tobi Owens
From the Mortgages team
3
minute read
Do you know someone who could benefit from this article?
Posted 8 OCTOBER 2020

A financial gift

One of the easiest and most straightforward ways to help your child buy their first home is to give them the money for a deposit as a gift.  
 
Although a good-sized deposit can help them find a cheaper mortgage deal, even 10% of the property value could get them a decent choice of mortgages.  
 
You’ll most likely need to sign a statement for the mortgage provider, confirming that the money is a genuine gift and not a loan that needs to be repaid. You may also need to declare that you have no legal interest in the property. 
 
You can gift your child as much money as you like without them having to pay tax on it. The only catch is, if you die within seven years of gifting the money, your child may need to pay inheritance tax.

A loan

If you don’t want to gift the money, you could lend the deposit to your child instead. There are two ways you could do this:

  • Set up a loan and charge them interest each month - you’d need to organise a repayment schedule. The arrangement can be formalised with a ‘promissory note’ – essentially a written promise for your child to pay the money back to you - which can be drawn up by a property solicitor. You’ll also need to let the mortgage lender know, as the loan could affect your child’s mortgage repayments. Be aware that a loan from you could limit the amount of mortgages your child can apply for.
  • Set up a ‘deed of trust’ – a formal agreement which ensures you get the money you’ve loaned your daughter or son back if the property is sold.

What if you don’t have a lump sum of money? 

If you don’t have enough cash available to give or lend a lump sum of money, there are other options: 
 
Equity release
The most popular type of equity release is a lifetime mortgage. It allows you to take a portion of the equity in your home and use it as a tax-free lump sum. You won’t have to make repayments, but interest will be added to the lump sum taken out and must be repaid if your house is sold.  
 
Offset mortgage
family offset mortgage allows your own savings to be offset against your child’s mortgage. This reduces the amount of interest they pay. The downside is that if you need to dip into your savings, your monthly payments will go up.  
 
Joint mortgage
A joint family mortgage takes into account both your income and that of your child’s. If you buy a property together, you’ll both be liable for mortgage repayments. However, if you already own a home, you could have to pay a second home stamp duty surcharge.
 
A way around this is a joint borrower sole proprietor mortgage (JBSP). Although you’d be jointly responsible for mortgage repayments, your child would have full ownership of the property, so you wouldn’t need to pay a second home surcharge.  
 
100% mortgage
Essentially, this is a parent guarantee mortgage. Your child can borrow the full 100% so no deposit is needed. However, as their parent you must guarantee to take over the repayments if they can’t pay.

Talk to an expert

Whatever step you take, it’s a big financial commitment and there are risks involved. Before you make any major decisions, it’s sensible to get advice from an expert. You can consult an independent financial adviser, and our partners, London & Country Mortgages can give you fee-free mortgage advice. 
 
Once you’re ready to compare mortgages, use our quick and easy comparison tool to find out what mortgage deals are available.

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