Parents are under increasing pressure to help their children onto the property ladder.
Over a quarter of property purchases are now funded by the bank of mum and dad. So, if you’re one of the many parents digging deep into your pockets – what are your options?
Can you actually afford it?
Some parents are able to have savings or investments, whilst others need to borrow money against their home to help their kids out.
Many parents opt to remortgage to release equity in their home, whilst those who don’t like the idea of swapping mortgage deals may get a loan secured on their home instead.
Some mature borrowers tend to favour equity release schemes as they allow you to borrow money against your home – with capital and interest paid back after your death or when the property is sold.
Like most things, there are pros and cons to equity release schemes – ( you can find a few here.)
Gifted money can cause complications with inheritance tax, and the donor must still be around seven years after gifting the money in order to be exempt of IHT. Obviously – nobody can guarantee they’ll be alive in seven years’ time which makes IHT planning quite tricky.
If lending money to your children seems like an easier option to you, you’re not alone. Many parents lend their children money at some point with the hope it will be paid back in the future, this could be when the property is sold.
In this instance, a loan document should be drawn up with any interest payable and the repayment schedule clearly detailed. This should be signed by both parents and offspring.
If you do decide to lend money to your children, bear in mind any loan agreements would need to be factored into the mortgage lender affordability assessment.
Act as a guarantor
Perhaps the most popular option amongst many parents is to act as a guarantor. This is a great way of helping your children onto the property ladder. However, like everything, there are risks involved, as you would be responsible for paying mortgage payments if your child became unable to do so.
Joint mortgages are also available, but these are a less popular option as the idea of the parent owning a share of the property is often unappealing to both parties – and both would be liable for joint mortgage payments.
Offsetting savings Many mortgage lenders offer products which allow parents to offset their savings against their child’s mortgage – meaning they usually qualify for a much cheaper mortgage deal.
Are you or your offspring taking the first steps onto the property ladder? Get in touch!