How can I help my child buy their first home?

First time buying is harder than ever, trying to get a mortgage is more difficult than it used to be, so what some parents are now doing is giving their children a help to get their feet onto the property ladder.

Should you help your youngsters to buy a home?

It is a difficult one, you want to help but you also want them to stand on their own two feet. Helping them may put a strain on relationships and not to mention your finances. It is a hard decision to make as you want to protect both of your interests but I am sure that I speak for many when I say we don’t want them still living at home in their 40’s do we?

Why might your children need help?

1. They have no deposit
2. Getting on the property ladder for the first time is harder and more expensive than ever.
3. They struggle to find a good deal

Given the difficulties that they face, it is no surprise that around half of all first time buyers get some kind of help with their purchase - more often than not from their parents

How can you help?

The easiest way to help is to give your child enough money for good sized deposit as a gift or even a loan if you are unable to afford to write off the amount. In the current mortgage market, that is likely to be around 25% of the value of the property (although even a 10% deposit will open the door to a better and broader choice of mortgage deals out there).
At present, there are no immediate tax implications if you give your child money, in fact you can give as much money as you like to your children tax free. 
However, in the future any gift you do give could be subject to inheritance tax if you pass away within 7 years.
If you do not want to simply give them money...
You can loan them the money and charge interest each month.

If you charge interest, it would need to be less than the market rate for the loan to help. Think about setting down a repayment plan with them right at the start and formalising the arrangement via a 'promissory note' which would need to be drawn up by a property solicitor.

You can get the money back if and when the property is sold. 

When you give your children money for a deposit, you can have a 'deed of trust' drawn up by a solicitor. This will set out how much money you have contributed and how you will get it back if your child sells the property in the future.
Your children should not have to pay income tax on the money you give them.

How do I use my home to raise cash?

If you do not have spare cash available you can use your own property or income to help raise a deposit

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Secured loans

You can use your own home to borrow money in the form of a secured loan, which means using your own home to guarantee the loan. This is a big step and you would need to be able to ensure that either you yourself would be able to keep up repayments if needed.
Finding the right deal and keeping interest payments to a minimum is essential so look around it is a must.

Equity release

This is a way to give your children their inheritance early, by borrowing money on the understanding that it will be repaid after your death, via the sale of your home.
Typically, you can borrow up to 50% of the value of your home (depending on your age and health) and will not have to make any repayments - interest is added to the lump sum that must be repaid after your death.

Guarantor mortgages

You can help your child buy a home without directly lending them money by acting as guarantor on their mortgage. This means your income is taken into account when agreeing a mortgage deal, potentially allowing your child to borrow more. However, as a guarantor, you would have to agree to cover any monthly mortgage payments linked to your child's home if they were unable or unwilling to do so. So yet another brave move on your part. There is a lot of trust around doing this.

Getting on the ladder without your help

If you are still unsure that you can afford to lend a hand, or are uncomfortable with the risks, there are other ways they can buy their first home.
Saving for a deposit is never easy, and one way you could help is by welcoming your kids back into the family home so they can cut down their outgoings. Set up an ISA with them and offer to help with their budgeting and saving so that they can make it on their own.