The options available to help a child buy their first home

There are many options available for parents looking to help their children onto the property ladder.

UK property prices have skyrocketed in recent years, which is why so many parents have made moves to help their children buy their first home.

By helping your child onto the property ladder now, they can potentially benefit from future property price rises, and won’t have to waste their money on rent.

What’s more, if you’re gifting money to them now, you could reduce your future inheritance tax bill (provided you live for seven years after making the gift).

If you don’t want to gift them money towards a property purchase, there are plenty more ways you can help them.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

What options are available to help my child onto the property ladder?

  • Gifted deposit. By gifting your children money towards a deposit, you can potentially help them get on the property ladder quicker or secure a mortgage with a lower loan-to-value ratio. These mortgages tend to have more favourable rates. The mortgage lender will want to see written proof that the donation is a gift, not a loan. If the children are being made to pay the funds back, it could harm their application.
  • Equity release. This involves exchanging the equity in your home for a cash lump sum. Parents may choose to do this to fund the purchase of their child’s home. Although it’s a quick way to get your hands on a lot of money, it can prove expensive in the long run. See our guide for an explanation of how the two types of equity release work.
  • Guarantor mortgages. By naming yourself as a guarantor on your child’s mortgage, you can boost their odds of being approved for a great deal. Lenders feel more comfortable approving first-time buyers with this extra layer of security against mortgage arrears. Bear in mind that lenders will perform a financial assessment to ensure you have the funds available to be a guarantor, and that you’ll be responsible for your child’s mortgage repayments if they fall behind on them.
  • Joint mortgages. With a joint mortgage, the annual income of both applicants are considered jointly. You can therefore boost your child’s borrowing power by applying for a mortgage jointly with them. You’re free to make your own arrangements for how the mortgage should be repaid, but be aware that you’ll be jointly responsible for the debt in the eyes of a mortgage lender. You’ll also have to agree on when to sell the property.
  • Offset mortgages. With this product, you can link a savings account to your mortgage and use the funds within it to reduce the interest you’ll pay. If your child has a £100,000 mortgage with £60,000 stored in a savings account, they’d only pay interest on the remaining £40,000. Best of all, they’re free to withdraw money from the account whenever they want. As such, parents can reduce their child’s mortgage payments without spending a penny, by transferring savings into this account.

Can I transfer a property to my child?

You can transfer a property to your children at any time, even if you still live in it. There may be legal fees involved though.

What’s more, you’ll still pay inheritance tax on the property if you die less than seven years before making the gift. If it’s a second home or holiday home, you’ll also be liable to pay capital gains tax on any increases in the home’s value. Learn more about capital gains tax.

Can I put my child’s name on the property deeds?

Co-owning a property with your child is possible, but there are risks involved.

  • You’ll pay legal fees to change the deeds.
  • You won’t be able to sell the property without their permission.
  • If your child falls into serious debt, creditors could come after their share in the property.
  • If your child gets divorced, their ex-spouse could have a right to their share of their property.
  • Their capital gains tax bill will be based on what you originally paid for the property, rather than its value when inheriting it from you after you die. This essentially means they’re missing out on the “step up” law.

Speak to a legal expert for a full summary of the pros and cons of adding your children to the property deeds.

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