70% of parents who help their child onto the property ladder say their financial support is a gift. But whilst gifting your child the cash they need for a bigger deposit may seem like the right thing to do, it could leave you (and them) unprotected.
For example, if your child is buying a property with their partner and they separate, you could both lose the money. By giving the money as an interest free loan instead of a gift, your money is more protected. And you can always make a gift of that loan later, when you feel more relaxed about the situation or their relationship matures.
Be involved with the mortgage deal
The average house deposit is between 10% and 15% of the full purchase price of the property. Building that type of lump sum takes time which is why family members sometimes step in to help. If you’re contributing to the property purchase, make sure your child tells their mortgage lender or mortgage broker from the start as any third-party involvement could impact the mortgage offer later.
Remember you may need it back
Strongly consider the possibility that at some point you may need the money back. Ensure your money is protected by a Declaration of Trust which states that the house is to be sold if you need the cash back and agree fair terms, so you and your child are both protected.
A Declaration of Trust is a legally binding document stating the division of ownership of a property. It is used by ‘tenants in common' who have paid different amounts into the purchase of the property.
Protect your other children and family members
If you’ve borrowed the money or used a savings account to fund your child’s purchase and help them to get onto the property ladder, this could affect what is passed onto your other children when you die. By having a Declaration of Trust in place, you can be clear about how the funds should be settled between all parties in the event of your death.
If you want to guarantee a return of your investment, you need to register a restriction at the Land Registry to ensure your child cannot sell the property without your consent. Whilst this is unlikely to happen, it could make all the difference and therefore it’s a good idea to be protected.
Remember it's taxable
If you see your contribution as an investment which will give you a return, remember that even if your name isn’t on the property deeds, any profit you make may be taxable as income tax or capital gains tax.
Share your particular circumstances
The average age of a first-time buyer is 34 but even at this age, you may still want to help your child get on the property ladder as it's an investment for their future. However, it's important that you are clear with your child about how much you are prepared to contribute as this could change whether they go for a smaller mortgage.
It's important that you don’t let yourself get lead into paying more than you can afford, as this could cause you both more problems in the long term.
Respect your child's boundaries
If you’ve already been through the process of buying a property, you’ll know there are often little hiccups along the way. Use your experience to help prepare your child for this so they can calmly navigate the conveyancing process.
This may be encouraging them early on to start saving or look to see if there is a government schemes such as help to buy schemes, to help first time buyers. Help them to review their monthly spending so they can plan for the financial commitment moving forward. After all, buying the property can sometimes be the easy part, paying the utility bills and mortgage for the property is often the more difficult part.
Whilst your contribution to your child’s property will no doubt be a huge help to them, remember it is their purchase and they’ll want to have control over any decisions made. They wanted their own home and to be on the housing ladder, so it is important for them to take responsibility for any decisions about the property.
Enjoy the experience
Buying a property, especially your first property, is a big responsibility and can often lead to people feeling overwhelmed and stressed. If your child isn’t their usual sunny self with you during this time, don’t take it personally. Remind them that buying a property is an investment in their future. Keep smiling, be there if and when they need you to be, and your positivity will help get them through.