How To Help Your Loved Ones Get Onto The Property Ladder


Get onto the property ladderHow do you help your loved ones get onto the property ladder? Finding enough money for a deposit is often the biggest barrier for borrowers trying to get on or move up the property ladder. As property prices have increased, so has the deposit requirement for a property purchase, making it difficult for many buyers, particularly younger people to find the funds required without help. If you have a loved one, including a child or grandchild who is trying to buy a property and is struggling, there are lots of ways you can consider in order to help them.

Ways to help them buy their first property

There are number of options available as many first-time buyers rely on the ‘Bank of Mum and Dad’.

  • Gift or loan the money from your savings
  • Buy the property for them
  • Be a guarantor
  • Help with the mortgage – offset or joint
  • Take out an equity release mortgage

Think very carefully before you lend a helping hand

However, if you want to help your loved ones get onto the property ladder, you should think very carefully before making any decision, as helping your child buy a home could have a significant impact on your finances in retirement. If you do want to lend a helping hand in any of the ways we identify, you will need to protect your own interests as well as those of your loved ones.

Saving for a property can be a long and challenging process

Although the Bank of Mum and Dad was already firmly established prior to the pandemic, it seems that parents and grandparents have been more than willing to help during the crisis and continue to do so. Getting on the property ladder for the first time is more difficult and more expensive than ever. Living costs are high and salaries are relatively low in some cases, which can make saving for a house a long and challenging process.

Can you help your loved ones onto the first rung?

In order to ascertain whether you can help, consider the following questions:

  • What is you own financial situation?
  • What is your relationship with your children?
  • Why do you want to help?
  • How would you like to help?
  • Do you qualify?

Buy the property for them

If you have the means to do it, you can buy a house for your child. This would mean that you buy a second property. It has many benefits including giving them a place to live and saving money on rent. You will need good advice in order to minimise the amount of tax and fees you pay and when the time comes for them to inherit that the inheritance tax they pay is minimized.

Give a gift from your savings

You could gift from savings and in this way you could increase your loved one’s deposit. This could help them get a better mortgage deal. Your child or grandchild won’t have to pay tax immediately on the gift, but may have to pay inheritance tax later on.

Loan the money

You will need to set up a loan agreement to include the amount, any interest and the time period of the loan. You should also include details as to what happens if one of the parties dies or you perhaps need the money back. The mortgage lender will need to know that this is a loan.

Be a guarantor

You act as guarantor for the mortgage debt. If your child or grandchild cannot make a mortgage payment/s, it will be down to you to pay.

Ways of helping with the mortgage:

Offset mortgage

You can offset your savings against your family member’s mortgage, thus reducing the interest they pay.

Joint mortgage

Another option is to buy the property together by way of a joint mortgage. Here you are equally responsible for repaying the mortgage. There are some downsides to this including:

  • Stamp Duty – you may have to pay the full amount
  • Capital Gains Tax – there may be implications when the property is sold

Equity Release

This is when you release the equity in your home. This is released in cash to spend as you like including helping your loved ones onto the property ladder. The downside of this is that it could have an impact on the amount of inheritance you leave, although on the other side of the coin, it is a way of giving your loved ones their inheritance early.

How can Paxton Equity Release help you?

If you do decide to take the equity release option, you should look for an adviser with a wealth of experience and a host of recommendations. Please call Martin on 01892 617070 for a chat or email Martin will discuss your options, and will let you know if an equity release mortgage is the right choice for you.

Get onto the property ladder


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