The objective of owning their own property is an increasingly challenging goal for many young people and for those in your family facing that predicament they may look to you for support and advice.
So, how can you help?
There are quite a few different ways to help get your children, or grandchildren on the property ladder, beyond the obvious solution of simply gifting a deposit. You may also consider the following:
- Loan a deposit.
- Acting as a guarantor on their mortgage.
- Getting a joint mortgage. (The affordability criteria may be more strict due to age restrictions on mortgage terms, and you also need to think about the stamp duty implications here too.)
Further look at the options for helping your children or grandchildren onto the property ladder :
1. Gifting deposits
The most common way to help is to gift a deposit. Gifting money is also a good way to avoid paying inheritance tax (IHT) further down the line. There is a £3,000 allowance each year to give away and be exempt from inheritance tax, and you can carry over any unused allowance from the previous year. So for example, two parents, or grandparents could gift £12,000 using the two years allowances without encountering any IHT.
If you do decide to gift the money then most mortgage lenders will expect to see proof initially that you have the money to give and then they will require a statement from you confirming that it is a gift, and that you do not need the money back, otherwise the lender will presume that it is a loan. They will also want you to confirm that you don’t expect to own a percentage of the house with your gifted money, for repossession purposes, should the worst happen.
2. Consider a loan
If you want to just loan the money instead, keep in mind that it may impact your child or grandchild’s affordability for their mortgage, as they will need to factor in making regular payments back to you until it’s paid off. You may also want to consider that if it is a loan, and your child or grandchild is buying with a partner, that if that relationship breaks down and the house is sold, then you could stand to lose some of your money.
3. Alternative ways to gift a deposit
If gifting money to your children or grandchildren may leave you short of funds in the future there are good alternatives to consider listed below:
- Get a secured loan against your own property.
- Release some equity from your home.
- Look into family offset mortgages – you may want to pay some money off for them at a later date.
- Gift a deposit but get the money back when the house is eventually sold, by setting up a Deed of Trust.