Should you help your children buy a house?

Getting on the property ladder for the first time is harder and more expensive than ever.

Many first time buyers, particularly those with little in the way of a deposit, find it difficult to secure an affordable mortgage deal with which to purchase their new home.

Given the difficulties they face, it is no surprise that around half of all first time buyers get some kind of help with their purchase – more often than not from the Bank of Mum and Dad.

The easiest way to help is to give your child enough money for good sized deposit as a gift. In the current mortgage market, that is likely to be around 25% of the value of the property.

There are a number of alternatives:-

You can loan them the money and charge interest each month.
If you charge interest, it would need to be less than the market rate for the loan to help. Think about setting down a repayment schedule at the start and formalising the arrangement via a ‘promissory note’ which would need to be drawn up by a property solicitor.

You can arrange get the money back if and when the property is sold.
When you give your children money for a deposit, you can have a ‘deed of trust’ drawn up by a solicitor. This will set out how much money you have contributed and how you will get it back if your child sells the property in the future.

You can establish a “gifting trust” and make a loan to your children via this trust.

This provides very useful long term “bloodline protection” and essentially not only provides you with the peace of mind that any “loan” or “gift” is protected against divorce or other social impact but also should your child eventually go into business – and the business fail, then the trust should provide protection from creditors also.

Whatever you decide to do, do not make the mistake of simply doing what is easiest, do what is best for the long term – take advice. Our trust department would be happy to discuss your plans with you.