In the current economic climate, and for many years, it has become increasingly challenging for first-time buyers to get onto the property ladder. As a parent or grandparent, you will want to do all you can to support your children.
In February 2023, the average property price for a first-time buyer in the UK was £255,170, a 5.5% increase year on year. Long gone are the days of the average deposit of £12,000 for a first-time buyer of an average age of 29 in 1999! Nowadays, the average age of a first-time buyer is 33, and the average deposit is £61,000.
Raising that amount of money as a deposit for a first home can feel impossible, particularly with rising prices and consistent uncertainty. However, there are a few ways you might be able to assist your child(ren) in buying their first home.
In this article, Gordons Partnership’s experienced solicitors explain a few possible ways in which you may be able to assist your children in taking their first step onto the property ladder.
– Gift From Savings
The most popular way parents or grandparents support their children in buying a property is to gift them a financial donation that boosts the existing deposit. This will not only speed up the process of buying a property as they will not have to save for so long but your child’s borrowing power will be boosted meaning they can get a better mortgage deal.
Whilst tax is not immediately payable on the gift immediately, further down the line, it may be subject to inheritance tax.
– Arrange a Loan
If you would like to assist your child(ren) but are likely to need the money in the future, entering into a loan agreement is sensible. Such an agreement is relatively straightforward to create and would disclose any interest and the payment period. It should also include what should happen if one of the involved parties dies or you promptly require the money back.
Such a loan should be declared to a mortgage lender and could impact the lender’s assessment of affordability. In some cases, with a loan agreement, some banks may refuse a borrowed deposit.
– Utilise a Family Offset Mortgage
Family Offset Mortgages allow you to offset your savings against your child’s mortgage, reducing the interest they are liable to pay.
The savings balance is not used to repay the mortgage but instead sits alongside it, treated as a provisional overpayment. If needed, it is still possible to dip into the savings when necessary.
– Be a Guarantor
Acting as a guarantor for your child’s mortgage means that if they cannot make mortgage repayments, you will be liable to make the payments for them.
If, at a later stage, your child can prove that they can manage the mortgage liability on their own, you may be removed from the mortgage agreement.
– Take out a Joint Mortgage
Buying a property with your child (a joint mortgage) makes you equally responsible for repaying a mortgage. With your combined incomes, this may mean that you can obtain a larger mortgage.
However, although first-time buyers are not usually liable to pay stamp duty, in this case, you will be liable to pay full stamp duty if you have owned before and extra if you still own another property (your family home, for example).
If it is your second home and you are still on the mortgage when the property is sold, you may be liable to pay capital gains tax.
– Utilise Equity Release
Releasing equity on your home may be an option to assist your child(ren) in buying property. A lifetime mortgage allows you to release equity in cash for you to spend however you wish.
In addition to assisting your children get on the property ladder, you may consider utilising it to pay for your long-term care or other substantial fees.
Releasing equity can significantly impact your finances in retirement and your ability to leave an inheritance, so doing so with the support of a trusted solicitor is vital.
Residential Property Solicitor Guildford and London
At Gordons Partnership, our experienced residential property solicitors work harmoniously with our private client team for clients who wish to support their children in getting onto the property ladder.
We understand the excitement of doing so can be overshadowed by the vast array of options available and the potential complexities that can arise.
By instructing Gordons Partnership, you can be safe in the knowledge that our solicitors will do all they can to support you in selecting the best option for your circumstances to aid your children and subsequently carry out all of the necessary legal tasks.
To speak to our team today, please call 01483 451 900 (Guildford) or 020 7421 9421 (London). Alternatively, please email sols@gordonsols.co.uk or fill in this contact form.