How to help your children buy their first home

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TPFG

4 months ago - 12-08-2018

Consistent rises in property prices and strict affordability tests have ruled out homeownership for what seems like a generation of adults.

While many of Generation Rent are writing off their chances of owning a home, others are seeking help from the Bank of Mum and Dad.

While many parents will have enough in savings to lend a deposit to their offspring, many do not and feel they are left with very options to help their children on to the first step of the property ladder.

But there are several options available and Ellis & Co has outlined the best options available here.



THE BANK OF MUM AND DAD

If you have substantial savings, you may wish to 'gift' some of this money to your child to help them with a property deposit.

If so, it's important you understand the tax rules with regarding to gifting and inheritance tax.

You can give away up to £3,000 a year without your children becoming liable for inheritance tax and this can also be backdated by 12 months.

So, if you didn't gift anything in 2017, you could, as a couple, give away £12,000 this tax year. This would go a long way towards your deposit for a flat or house, but your children should be aware that they could be liable for inheritance tax on gifts if you die within seven years.

For absolute clarity, seek independent financial advice before gifting to your children.


GUARANTOR MORTGAGES

Lenders will sometimes offer a guarantor option where the amount your child can borrow as a mortgage is relative to your income or assets alongside theirs.

Of course, if your child misses a mortgage payment, you are liable for it as guarantor. This can bring with it an added element of risk if you still have a mortgage on your own home.



JOINT MORTGAGES

This type of loan takes into account your income alongside your child's and also factors in what is left on your mortgage if you still have one.

You would be named on the deeds alongside your child and, as such, would have a degree of control over future transactions.

However, you would also be liable for ensuring the mortgage is paid up to date and could face a large stamp duty bill.



REMORTGAGING

Firstly, before remortgaging it is hugely important to evaluate the effect extra borrowing could have on your standard of living and retirement plans. Always seek independent advice before undertaking this option.

While all of the above needs to be carefully considered, remortgaging your own property is still an option to help you children on to the property ladder.

Remortgaging would free up all or some of the equity in your own home and involves arranging a new mortgage on the property.

It could increase your mortgage term and your repayments could increase so think carefully about how this would affect your own life.


THREE TOP TIPS FOR MUMS AND DADS

1. Be clear about the terms of you lending your child money if you choose to do so. Is it a loan, a gift or an investment.

It's not an easy conversation to have, but given the amount of money that could be involved, it is best that everyone knows where they stand.

2. With the above in mind, it can be worth making the agreement with your child legally binding. Speak to a solicitor to find out the best options for you and your child. This could safeguard your money if it is a loan or investment.

3. Always communicate. Your child may feel dejected about having to borrow money from you and would prefer to stand on their own two feet, even if this is not possible.

This could mean they are less likely to talk to you if they start to struggle to meet mortgage repayments.

Always keep the lines of communication honest and open and tell them they can come to you if they get into difficulty.



For a list of affordable properties in London for first-time buyers take a look at our latest properties for sale or speak to your local Ellis & Co office.



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