Buying a house for a first time buyer is more expensive and more difficult than ever.For some lucky buyers, their parents can step in.
Living costs are high and salaries are low, so it is difficult to save for a deposit. With more money, your child will be able to buy a better property – whether that’s bigger or just in a better location – they will likely get a better mortgage deal and pay less interest.
But what is the best way to help? We’ve put together a brief overview of some of the ways you can help.
If you have the means, the easiest way to help is to give your child a deposit. A deposit can be anywhere between 5-25% of the property value. This does not count as a loan, nor do you have any ownership stake in the house. There are no tax implications directly but monetary gifts can be subject to tax if you pass away within a certain time frame after giving it. Read more about inheritance tax here.
If you don’t have the cash or simply don’t agree with dishing out lump sums, that’s fine too. Here are a couple of ways you can help out without losing out.
#1 Deed of Trust
A deed of trust means you can give money for a deposit and get the money back if/when your child sells the property in the future. This can be a great way to help your children get on the property ladder while keeping your money safe.
#2 Better-than-the-bank Loan
You can loan your child/children the money and set out a repayment schedule. It is up to you how much interest you charge. For added security you can formalise this through a solicitor.
#3 Secured Loans
If you don’t have any spare cash available you use your home to take out a secured loan. This can entail risks to you and your child if things go wrong so be sure to do your research and consider the options before you go down this route. You can read more about how homeowner loans work here.
#4 Equity Release
This is a way to give your children their inheritance early. You borrow money, on the understanding that it will be repaid after your death, via the sale of your home. This is a complicated option so make sure you talk to a lifetime mortgage company to understand all the features and risks.
Don’t want to borrow money?
As with the loan options mentioned above there are risks to taking out mortgage options. Always make sure you understand the terms and conditions before going ahead
Are You Looking To Help Buy Your Child A House?
Contact JP Goldman today. Our conveyancing team will be more than happy to help.