How can you help your child get onto the property ladder?
Getting on the property ladder is more expensive than it’s ever been. So, if your child is struggling to take their first steps on the rung, you may want to help.
In this blog, we’ll outline the different ways you can support them in the house-buying process – without necessarily handing the cash over!
Gifting or lending the money
Of course, you may be in a position to gift the money, in which instance you could provide your offspring with the deposit. Your child will not have any tax implications from a gifted lump-sum, and it may also help them to get a more competitive deal, if it helps to increase their deposit – e.g. from 5-10% to 15-25%.
Alternatively, if you would rather loan the deposit – rather than gift it – there are a couple of options for getting the cash back.
Firstly, you could set down a schedule, outlining a regular repayment each month. If you wanted the agreement to be more formal – for added peace of mind – you could have a ‘promissory note’ drawn up by a solicitor. This is a signed document containing a written promise to pay a sum at a specified date.
Another method is by drawing up a ‘deed of trust’ to get the funds back, once the property is sold.
However, it’s important to note that some lenders will count this as a ‘loan’, which may impact your child’s affordability assessment.
Other methods
We understand that not all families want, or can afford to, dip into their savings to help their children.
If you aren’t in a position to give your child a lump sum of money, you can go down the mortgage route, with three main options, outlined below:
2. Guarantor mortgages
Acting as a guarantor on their mortgage may allow your child to take on a larger loan than the lender might ordinarily issue.
The lender would either require you to put money in to a savings account for a certain amount of time, or secure a percentage against your own property.
As a guarantor, it would mean you are liable and agree to cover any monthly mortgage payments linked to your child’s home, if they were unable to make the payment. However, if your child makes the regular payments each month, there’s nothing for you to pay.
There are a lot of stipulations with guarantor mortgages and they’re not straight forward, so it’s always best to get independent advice before going down this route.
2. Joint mortgages
A joint mortgage is a good option if your child wants to buy a more expensive home, as your own earnings will be taken into account when calculating the affordability. Legally, you’ll own a share of the property and you’ll split the monthly payments – but these can be agreed between you.
Applying for a joint mortgage with your child would mean that, if they were unable to make their share of repayments, you’d be liable to make up for the shortfall.
It’s also important to remember that there will be additional Stamp Duty implications if you already own a property, and there may be age restrictions.
3. Joint borrower sole proprietor mortgage
Joint borrower sole proprietor mortgages (JBSP) allow you to support your child by using your income, to maximise the amount they can borrow.
You wouldn’t appear on the mortgage deeds, meaning that you wouldn’t be entitled to any income from the property, whether that be via rental yield or property value. However, it does mean that you have an easy exit strategy, once your child can afford to pay off the mortgage on their own.
As with all of these above options, risks are involved, so it’s important that you research and seek mortgage advice beforehand.
If you’re thinking of helping your child to buy a home, it needs to be a well-considered decision.