It can be tough for young people today to get on the property ladder without any help. With the rising cost of rents and stagnating wages, the thought of saving money every month to get on the property ladder is near impossible.
With this in mind, some parents will choose to help their children get on the property ladder as first time buyers. Whether you gift money towards their deposit or find another way to help them secure a mortgage, there are a few legal considerations that you should keep in mind.
If you’d like to help your child secure a mortgage, these are your primary options.
Give Them Money for a Deposit
If you want to help boost your child’s deposit by giving them some extra money, or if you will be providing the full deposit, you will need to think about Inheritance Tax. It’s possible to give your child up to £3,000 per year, which can also be backdated to one year previously.
So, in one tax year, it could be possible to give your child up to £12,000 without paying any inheritance tax. However, if you die within seven years, this could have tax implications for your child. If the money is a gift, you may need to inform their lender in writing.
Lend Them Money For a Deposit
If you are lending them the money for a deposit and they will pay it back in installments, you will also need to inform their mortgage provider as these repayments will need to be considered in the affordability calculations. If you choose to lend the money rather than gift it, it’s important that you formalize the process.
Be a Guarantor on Their Loan
If the mortgage provider has doubts that your child will be able to repay their loan, there is something known as a guarantor mortgage which could be more suitable. There are different types of guarantor mortgage available. If you aren’t sure which is right for you, you should seek the advice of a specialist mortgage broker like Niche Mortgage Info. With a guarantor loan, you will often offer your own home as a security deposit. You will also agree to be financially liable for the mortgage payments if your child is unable to pay.
Secure a Joint Mortgage
If you would prefer to have more financial control and a stake in the property, a joint mortgage could be a better option. If you choose to apply for a joint mortgage with your child, you will need to be clear about what percentage each party owns. Both parties will be named on the deeds, so it’s important that your child understands that they will not own 100% of the property.
In order to remortgage further down the line, they will need your permission. You will also need to update your will to ensure that this ownership arrangement is accounted for. If you already own your own home, you may also be subject to second home stamp duty.
Remortgage Your Own Property
Some parents will choose to help a first-time buyer by remortgaging their own property. This money could then be used to help their child in any of the ways listed above. If you decide to remortgage your own property, it’s important that you consider your own repayment terms and affordability.
You should always get all agreements in writing. Mixing family and financial affairs don’t have to end badly, but relationships can quickly go sour when money is on the line. To avoid this, ensure everything is in writing and that everyone understands their obligations before going ahead.
