Helping your children on to the property ladder

It can now be more expensive for parents to help their children buy a home. We look at some of the options, including government schemes for first-time buyers.

Buying a property jointly with your children became more expensive last year, when the government imposed a 3% stamp duty surcharge on second homes. If parents already own their home, having their name on the deeds of their children’s home, which would be necessary if they take out a mortgage on the property, results in it counting as their second home, even if they own it jointly with their offspring.

Fortunately there are other ways you may be able to help your children get on the property ladder without incurring this additional cost. However, this generally involves you having less – or no – control over the property.

Give your children cash

While you might not be able to write a cheque for £200,000 or however much you would like to give them, you may be able to re-mortgage your own home and pass on any money that is released. You would then repay the mortgage as part of the monthly repayments on your home. Some parents charge interest on the loan, to cover the additional repayments. If you do, you would need to declare this income through self-assessment and you would probably have to pay income tax on it.

If, on the other hand, you give the money away as an absolute gift, this can be an effective way of reducing your eventual inheritance tax liability. Either way, you would not have an equity interest in your children’s home.

Act as guarantor for the mortgage

You could also guarantee your child’s mortgage, which may enable them to borrow more. However, this involves using some of your own assets, for instance your home or your savings, as security to guarantee that you will pay if your children fall behind with their mortgage payments. This could reduce the amount you are able to borrow in future – and of course you could have to pay out in the unlikely event of your children falling into arrears.

If you are considering helping your children (or grandchildren) buy a property, it is worthwhile talking to an independent mortgage consultant who can explain your options. A few mortgage lenders allow parents to take out a joint mortgage, but with their child having full ownership, while others offer family offset mortgages, neither of which incur the stamp duty surcharge.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.