Helping your child onto the property ladder has become a natural and common thing to do these days.
There is however more to this than simply handing over the cash. In this article we look to highlight some pointers which every parent should keep in mind when planning to provide financial assistance.
The first point, and one which is pretty fundamental, is to consider whether you can purchase the property outright. If this is not possible then you will need to do some research to find the best mortgage product available. Lenders are more vigilant than ever during the mortgage application process and it is therefore essential to be honest about your financial circumstances. Don't exaggerate your income to secure a larger mortgage. If you are helping with a gift and your child is applying for a mortgage make sure they disclose your gift to the lender.
You may be advised to make sure you put your names on the title deeds. You will need to ensure the property is registered at the Land Registry with you and your children holding as tenants in common. This means in the event of the death of one of the owners the deceased’s owners stake in the property will pass in accordance with his or her will. So make sure you also update your will. Also keep in mind what will happen to the property and your child’s home if you were to die.
There will if you are named on the title deeds be tax implications so make sure you talk through your plans with a tax expert before you commit.
If you don't wish to be named on the deeds then make sure your intention when making the money available is clear. Is it a gift or a loan? If its a loan will you be charging interest?
Even though they are your children you will need to seek independent legal advice. See a solicitor and get a legally binding agreement drawn up. To safeguard a loan or investment, make sure it stipulates the nature of any arrangement and steps are taken to ensure the property can not be sold without your consent. Keep in mind that if you are making a gift and not taking a stake in the property your child’s solicitors will require you to provide evidence of identification and the source of funds which you will be using.
There are other options available. You could offer to be a guarantor for your child to get a mortgage. You could look to remortgage your property. Its best to explore all options with an independent financial advisor.
Finally take care - don’t put yourself in a financially risky predicament by overextending yourself and don't assume that mortgage interest rates will remain at the same level. You shouldn't rely on your current good relationship with your child – things can go wrong.