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How to help your child buy a home
The Bank of Mum and Dad helped 170,000 first-time buyers to get on the UK property ladder in 2022, contributing a total of £8.8 billion*
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Last year, about 46 per cent of mortgaged first-time buyers in the UK received financial assistance from their families with the purchase of their properties – and it has been predicted this will rise to 61 per cent for the whole of 2023.
Meanwhile, according to the Office for National Statistics, the average price of a UK house increased by 6.3 per cent in the 12 months to January 2023. Therefore it appears that the need still remains for parents and grandparents to help their children and grandchildren to get on the property ladder.
There are a number of ways they can do this, including gifting money for a deposit, taking out a family mortgage or using equity release to pay for a property. This article assesses some of the options available to family members asking ‘Can I buy a house for my child?’
Can I buy a house for my child?
It is possible to buy a property for your child to live in, with the intention that later they will own it. However, how you do this could have tax implications or lead to the imposition of restrictions, based on your circumstances. There are a number of options available to you if you are considering lending a helping hand, depending on your own financial position and the level of support you would like to provide.
Options to help your child buy property
1. Gifting money
If you have sufficient savings then you may want to consider gifting a lump sum to your child to help towards a deposit or cash payment. Giving money to your children like this is sometimes referred to as a living inheritance.
2. Helping with the mortgage
If you don't have a large sum of money already available or don’t want simply to give a home to your child, there are several mortgage options that you may wish to explore.
Family mortgages
Some lenders offer family or springboard mortgages that are specifically designed for buyers who can’t afford to put down a deposit. Instead they require parents to be prepared to hand over some of their savings temporarily.
These home loans typically require 10 per cent of the property purchase price to be held in a savings account for three years. As long as no mortgage payments are missed, these savings will be returned to you after this time.
Guarantor mortgages
Alternatively, guarantor mortgages may be the right option for you. With these, you can agree to use your own property or savings as security. There is no requirement to be named on the mortgage or the title deeds but you will be liable to help cover repayments if needed, so lenders will want to check that you can afford this after you have covered all other outgoings.
Joint mortgage with parents
Another option for first-time buyers who can’t afford to go it alone is to take out a mortgage jointly with their parents.
However, if you become joint owners with your child, you will again be liable for any payments that they cannot afford. Should any payments be missed, the home may be at risk of repossession.
Tip: If you already own your own property, you must also remember that owning a share in another property could lead to a Capital Gains Tax (CGT) liability. There will also be a Stamp Duty surcharge, starting from 3 per cent, as this is payable on top of the usual Stamp Duty rates when buying a second home.
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3. Using equity release to help children buy a house
Many parents don’t have a large lump sum to help their children get on the property ladder, often finding themselves asset-rich but cash-poor as they approach retirement.
Instead, one of the options for parents aged 55 or over who want to give children money to buy a home is to consider releasing equity from their own property.
The most popular type of equity release product is a lifetime mortgage, which allows you to release equity from your home as a tax-free cash sum. Interest rolls up over time and is only repaid along with the amount released either when you, and your partner if it’s a joint mortgage, pass away or go into long-term care. You can opt to pay interest each month if you wish, or to make voluntary capital repayments.
Equity release could allow you to give your children their inheritance early, offering you the chance to see this money being put to use when it is needed. You should bear in mind though that by taking equity out of your home today, there will be less available for your estate in the future. If you are in receipt of means-tested benefits then you may also find that a tax-free sum affects your entitlement.
Here we compare these three ways of helping your child fund a property purchase:
**Please note that money gifted via equity release could be liable for inheritance tax, but a financial adviser can explain this further.
Exploring your options
Many parents want to be financially independent from their children, and so they may prefer to gift a lump sum to help with a property purchase rather than buying a home jointly or guaranteeing a mortgage. Releasing equity from your home can be a great option to help your child get on the property ladder.
If you are considering releasing equity from your home to help your children buy their first home, always seek professional financial advice first.
The free equity release calculator below, provided by specialists Responsible Equity Release, enables you to see an estimate of the amount of tax-free cash that could be available to you. You will also receive a copy of The Telegraph Media Group Guide to Equity Release. Simply enter how you would like to receive your guide and the value of your property to begin.
This form will also put you in touch with the knowledgeable Information Team at Responsible Equity Release, who can answer your initial questions for free and book you a no-obligation appointment with one of their fully qualified advisers. If you choose to give a phone number, they will call you directly.
- Try the free equity release calculator now and see how much tax-free cash you can release
Read more:
- How to calculate buying out your spouse's share of the house
- Is borrowing on your mortgage the best way to finance home improvements?
- How long does equity release take?
* https://www.savills.co.uk/insight-and-opinion/savills-news/340781-0/bank-of-mum-and-dad-paid-out-almost-%C2%A39-billion-in-2022
Important information
Equity release is only available to homeowners that own a property within the United Kingdom.
Please note: Telegraph Media Group Limited is not authorised to provide advice or arrange equity-release products, so we have partnered with a leading equity-release specialist to provide this service to you.
The Telegraph Equity Release Service is provided by Responsible Equity Release. Responsible Equity Release is a trading style of Responsible Life Limited. Responsible Life Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (https://register.fca.org.uk/) under reference 610205. Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,690.
The above article was created for Telegraph Financial Solutions, a member of Telegraph Media Group. For more information on Telegraph Financial Solutions, click here.
Information correct at date of publication.