In today’s economic climate, it’s increasingly common to help your child with their first home.
In this article, we’re going to look at three options to help you do this.
Why not take a look at the pros and cons of each and choose the one that’s the best fit for you?
1. With a cash gift
A lump sum of cash is a great way to raise the deposit for a first home, but there are a few things to consider.
Lenders may require the gift to be in your child’s bank account for a period of time. Typically this could be between three and six months, so you’ll need to plan ahead.
The lender will also need to know that your child can keep up with the repayments, which usually means that they are employed (or self-employed) with a certain level of income.
And you should accept that your cash gift is exactly that — you may need to sign a declaration to say you don’t expect it back.
You should also consider what happens if your child buys with a partner and they split up — the partner could end up with a share of a house that you’ve helped to fund.
2. Buying in partnership
Buying a property in partnership with your child and owning it together is another popular option.
There are various ways of doing this — you can own the property in different proportions, and your share could pass to your child or another party in your will, or you could own it 50/50 with a clause that means your share automatically passes to your child, regardless of your will.
Be sure to get legal advice for this option and agree on ground rules before you go ahead.
3. Using your home as a guarantor
Instead of cash, you can use the equity in your own property as security. This is known as a guarantor loan and means your child won’t have to raise a deposit.
You can limit the scope of the loan by setting it as a certain proportion of the property’s value, for example, 20%. This means you can be released once the property rises in value or your child pays off that proportion of the loan.
Know that you may not be accepted if you are retired or are still paying off your own mortgage. And your child will need to prove that they can afford their mortgage repayments.
Helping your child with their first home is a valuable gift. Choose how you do this wisely, and you will be helping to get your child off to a secure start in their adult life.
If this article has inspired you to think about your own unique situation and, importantly, what you and your family are going through right now, please contact your advice professional.