Giving your grown-up children a helping hand onto the
property ladder. September 2006
Giving Your Grown-up Children a Helping Hand onto the
Property Ladder
by Helen Adams, Managing Director, FirstRungNow Ltd.

Typical first-time-buyer properties are expensive
compared with earnings, and many young people are finding it
impossible to buy a first home. So more and more parents are
helping their children onto the property ladder. This way, young
people can start paying off their own mortgage and become more
independent.
It may be that you, the parents, are still earning a good
salary or you have considerable equity or savings. There are
ways you can help which won’t break the bank.
Firstly, you have to plan your own financial needs and
make contingencies for any significant changes in circumstances.
Good independent financial advice is critical, as is good legal
advice and tax planning.
How you help your child buy their first home can vary.
The options include:
- offering to match savings
- paying stamp duty
- paying legal fees
- buying furniture and appliances
- harnessing the borrowing power of your salary or pension
in order to help with a deposit
If you opt for the last one, be aware that your home will
be at risk if you do not keep up repayments on any loan
secured against it – and this applies to any other property that
you borrow money for as well.
Helping with a deposit
A deposit is no longer mandatory when buying a property, but
having at least 5% to put down will open more doors to more
lenders and better deals. This also creates a buffer in the
event of a negative equity position.
Possible ways of coming up with a lump sum include:
- taking out a further advance or increasing your mortgage
with your existing lender
- re-mortgaging by taking out a loan with another lender,
using savings, equity release
- taking cash out of your pension.
There are two main types of equity release that can be
explored:
- Giving your children money. If you want to make a
gift of a deposit, parents are entitled to do so, but under
Inheritance Tax laws, tapering tax may be payable in the
event of your death.
- Lending them money. On whatever basis you make a
loan, it is best to set down a repayment schedule from the
start. It can be made legally binding with a promissory
note. Interest earned would form part of your income for tax
purposes.
Helping with the mortgage
As the first-time buyer market has become tougher and
tougher for lenders, they have become more inventive with
their mortgages. There are many mortgages designed specifically
for parents and their children in mind.
Options available which would require further investigation
are:
- Joint mortgages
- Joint ownership
- Guarantor mortgages
- Family offset mortgages harnessing savings
- Mortgages which write the parent into the finance but
not the ownership of the property
- Mortgages which use a pension income
Tax implications
The process of buying, selling, giving and renting out
property is riddled with tax issues. Finding out what these
are and how they work in advance could result in saving a
fortune.
Examples of taxes that parents need to be aware of are:
- Inheritance tax including tapering relief
- Stamp duty
- Pre-owned asset tax
- Capital gains
- Tax relief on renting out a room.
Legal implications
Drawing up legal contracts is essential to protect your
investment. Areas where parents will need legal assistance are
joint tenancy, wills, if your child’s partner moves in,
declaration of trust or trust deed.
How ‘kids’ can help themselves
Although help from parents can be the best option,
there are other ways that can be researched. They can be used in
conjunction with parental help if necessary.
- Joint Ownership or buying with a friend or sibling can
halve the deposit and other initial costs – it also means a
shared burden if interest rates increase.
- Shared Ownership or HomeBuy - these schemes allow new
home buyers to invest in part of a property, either paying
rent or repaying a loan on the share not owned at the
outset, but owned typically by a Housing Association or RSL.
- Flexible or innovative mortgages for first-time buyers
are now coming to the fore – a whole raft is available for
first timers to pick from – with or without parents.
Full information is available at
www.FirstRungNow.com
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