16 August 2019

Helping with your child’s first home

5 min read

 
Helen Morrissey, Personal Finance Specialist

Helen Morrissey

Corporate PR Specialist – Long Term Savings

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Many parents want to do all they can to help their children get on the property ladder. However, before forking out a large sum it is important to consider the financial implications this could have.

Consider the long-term

The most obvious point to think about is whether or not you’ll be able to manage without the money for the long-term. You might be able to afford to gift a large amount of money now but what if your circumstances change? Will you still be able to make ends meet if you were to get divorced for instance or lose your job? What if you need to fund care later on in life? If you have chosen to loan the money to your child rather than gift it then you also need to think about their ability to continue to make repayments. If they can no longer make the same repayments because they have lost their job or have had children then this could have a huge impact on your financial circumstances. It is essential to plan ahead and make sure you have enough money to cover your essential costs should the worst happen.

Don’t forget tax

Tax is another crucial factor to consider. For instance if you were to gift the money for a house deposit to your child and then die within seven years then they could be left with a big inheritance tax bill if your estate is worth more than the inheritance tax threshold. If you want to buy a property with your children and have your name on the deeds, then there’s also the issue of stamp duty, since you’ll be purchasing a second home. You can also be affected by income and capital gains tax. For information about all four options, head to our Good with your Money guide.

Can they repay?

Most parents will want to help their children out financially but before you do, it’s worth thinking about your child’s spending habits and whether it’s wise to give them such a large sum of money. Will they  be able to fully make repayments? What if their financial circumstances change and they find themselves unemployed and unable to make repayments, or in further debt? Such a situation can have a big impact on your financial situation and also have a negative effect on your relationship with your child.

Talk out the fine print

Before gifting or loaning money it’s important to sit down as a family to really iron out the fine details and make sure that everyone is totally clear. Something as simple as making it clear whether the money is being gifted or loaned is important. Other issues to highlight include whether you are purchasing the property as joint tenants, where you both own the property or more as a tenant in common, where each co-owner owns a specific share in the property. Making sure everyone understands the terms under which you are helping will go a long way towards avoiding any misunderstanding in future.

Cohabiting couples

It can be worrying if your child is unmarried and moving in with their partner. While they may be happy now what happens to the property if they choose to part ways and sell the property – will you get back what you put in? There are precautions that can be taken such as encouraging your child to get a cohabitation agreement drafted to establish who owns what, the financial arrangements made while living together and how assets and property should be apportioned in the event of a breakup.

If you are unsure about any of these options it would be a good idea to seek help from a solicitor or adviser to ensure that you’re covering all the important areas. While helping your child purchase a property can be an exciting time, it’s also essential to think through the financial impacts. If you need any more information about any of the tips above, visit our Good with your Money guide on the Bank of Mum of Dad for more.