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Stepping onto the property ladder can be a challenge for first time buyers. We take a look at how parents can help their children buy a home.

The so-called Bank of Mum and Dad is considered to be a major lender when it comes to financing first-time buyers. There are several implications to be aware of however and it is not as straightforward as simply handing over a deposit.

Gifting money for a house purchase

Giving money is a popular option. The lender will need to approve the gift and you will need to confirm in writing that the sum is a gift and you do not expect it to be repaid. You need to disclose to your child’s lender if you have borrowed the money yourself in order to make the gift. In some cases, this might not be acceptable to the lender.

You will also have to verify your identity and provide evidence of the source of the funds to comply with money laundering regulations.

There can be Inheritance Tax implications in giving a sizeable gift. Should the donor die within seven years of giving the gift, Inheritance Tax may be payable on it.

You may want to protect the gifted money for your child if they are buying the property jointly with someone else. This can be done by them owning the property as tenants in common. Each owner can hold a specified percentage, meaning that your child could own a larger percentage of the property if they have contributed more towards the purchase price than the other owner.

Other options for helping your child buy a property

There are a number of other ways in which parents might be able to help their offspring buy a home, including:

• Lending them money – which would need to be disclosed to the lender. The loan should be dealt with formally, particularly if they are buying jointly with someone else
• Acting as a guarantor on their mortgage – your child may be able to borrow more if you guarantee their mortgage. This means that should they default on the payments, you will be liable for repaying the mortgage yourself
• Taking out a joint mortgage with them – you can co-own the property with your child and take out a joint mortgage with them. This is likely to allow them access to a larger loan and potentially better interest rates. One point to beware of is that if you already own a property, then you will have to pay an additional 3% Stamp Duty when you buy the new property as it will count as a second property. You will also be liable for Capital Gains Tax when the property is sold if it is still your second property. An alternative is a joint borrower, sole proprietor mortgage, where you would not be an owner of the property but would be liable for the mortgage
• Putting savings into an account linked to their mortgage – family offset mortgages allow parents’ savings to used as security against the mortgage. You would not be able to access your savings if this option is used
• A springboard mortgage is similar to a family offset mortgage and allows your savings or your property to be used as security for the purchase

If you are considering what option is right for your situation, you may want to discuss the implications with a financial adviser before deciding as this is likely to tie your money up for some time.

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For further advice please contact one of our Residential Property experts today.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.