Is it any wonder why more millennials turn to parents for help buying a property? Deposits are increasing, wage growth is slow, zero hours contracts are everywhere and the capacity to save is getting harder.
If you have spare money and can help, you then need to address the delicate issue of whether it’s a gift or a loan. If it’s a gift, that’s it. You hand over the money and forget it, apart from a few disclaimers to sign from the mortgage lender to confirm you are not seeking an interest in your child’s property.
But a loan can be different. You might want to protect your investment from a third party such as your daughter’s boyfriend. That could lead to thoughts of the boyfriend benefitting from your investment if the couple separate. In turn, that can generate thoughts of you and your child becoming joint owners. However, chances are you own and live in your home. If you become the joint owner with your child, they would not be eligible for Stamp Duty Land Tax (SDLT) relief as a first time buyer as you already own a property. You will pay the standard rate for the transaction plus 3% at the higher rate. You might also face a bill for Capital Gains Tax (CGT) when you come to sell.
Not all parents have large deposits for their children and some might recoil at the thought of paying further taxes. But products are emerging which currently allow parents to support their children and not pay SDLT or CGT.
Joint borrower sole proprietor’ (JBSP) mortgages are becoming popular. It’s a niche product, not for everyone, but might appeal to some. A JBSP mortgage allows a parent to jointly take a mortgage with their child, but the child is only named on the title deeds as the sole owner.
There can be problems if the relationship between parent and child breaks down. Parents would find it difficult to have their names removed from the mortgage agreement if relations deteriorate.
There are other ways to help your child buy their first home. Guarantor mortgages allow you to use your savings to secure your child’s loan but lenders require you to lock-in your savings for a set period. Some lenders offer deals where you can use equity in your home as security for your child’s mortgage but that can be precarious as your home as well as theirs will be at risk if they default.
The best solution is to CALL US ON 0191 284 5030 to discuss your particular circumstances and how best you can help you child. We can then put you in touch with the right Independent Financial Advisors to assist you find the product that best suits you.