Saving for a deposit is a worry for a lot of first time buyers. Even with government assistance like help to buy, you still need a 5% deposit. The bank of mum and dad is one of the largest lenders, with over one quarter of housing transactions financed by parents or grandparents. However, the bank of mum and dad may lack experience when it comes to loaning or concern over whether there should be gifting rules or not.
To avoid confusion, it is important to seek to professional advice. Seek both a financial and legal adviser (your mortgage broker can probably recommend one for you) to help iron out any finer details. When loaning or gifting, it is vital to make the right decision. Of course, you want to help but it needs to be something you can afford and what is fair to all. If you have more than one child or grandchild a written agreement might be a wise move to avoid any arguments further down the line when a sibling is trying to purchase. A financial adviser can help you with what you can afford and help to split any money.
Draw up a contract with the ‘Bank of Mum and Dad’
If you’re not comfortable with gifting, loaning is another option. Again, an agreement or contract can be drawn up that states the rules and repayments. Some parents add interest, others don’t, some want a stake in the property and others may recall money early if they need to. There are many options, but the advice of a professional will make the right option clearer for you. Also, you should be transparent in the contract, if your child is making a joint purchase with a partner you should outline exactly who you intend the money to benefit, and should they split you can have an outline as to how any equity in the property is divided.
What is the money for?
If you want the money to be specifically for the property purchase, and not used for any other debts or purchases (even if they are house related) make it clear. You can pop money into a named bank account or a Help to Buy ISA – and give the money only when they have found a property and are going ahead with the mortgage.
Where is the money coming from?
Whether it’s coming from your personal savings, remortgaging, or pensions assets an adviser can give the best advice on the money that is most accessible and best to gift. You need to know you’re financially viable to give money so be forward thinking about your own finances and future before gifting or loaning. You should consider your retirement income, own monthly outgoings and any ongoing debts.
Every parent wants to help their child. But with money comes many issues and challenges. If you’re wishing to lend or gift money the one piece of advice anyone will give is to seek outside assistance. A financial adviser will be able to assist with which assets are appropriate and also talk over any tax additions that may incur from a gift or loan. You can speak to an adviser here.
The above post does not constitute advice – financial, legal or otherwise. The information within this article is the author’s own opinion and do not necessarily reflect the views of SO Media or So Smart Money.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.