Buying a first house has always been a huge step for anyone, but in this day and age, it can be near impossible to reach that particular step, especially for young people. So how can you help your children get on the property ladder?
There are various ways that you can consider assisting your children in entering the property market, however, how you choose to invest that amount of money is an important decision so choose wisely and think carefully about how it might affect your future.
Here are some options you can consider:
Give them a financial gift
The most common and straight forward way is to gift your children with a lump sum of money that they can use towards a deposit on a house. It will help them to get a better mortgage deal.
Give them a loan
Many parents opt to rather loan money to their children instead of giving it to them. A loan from a parent, need not be paid back with interest, as it would from a bank, or at least you as the parent can negotiate a much fairer interest rate on the loan. Whichever option you choose, Is it however very important that a loan agreement be drawn up, especially if you child is purchasing the house with a partner.
Make use of a family offset mortgage
Similarly, using a family offset mortgage will allow you to offset your savings against a family member’s mortgage. This option can reduce the amount of interest your children may have to pay, if they had to take out a mortgage alone.
Be a guarantor on their mortgage
Guarantor mortgages allow you to act as a guarantor for your child’s mortgage debt. Which means, you provide a safety net for your child should they find themselves unable to make mortgage payments. This approach also allows you to remove yourself from the mortgage agreement at a time where your child can prove that they are able to manage the debt on their own. This is an especially good option, if you child is at the beginning of their career and needs some time to build up their savings. However, as the guarantor you would need to be sure you are able to service the loan, if your child is unable to continue doing so themselves.
Buy a house together
Another great idea is to take our a joint mortgage with your children. You will then be equally responsible for repaying the mortgage, and with your combined incomes your child may have more options on how big the mortgage could be. Ideally, you child will eventually buy your half of the property once its paid off or sold.
Using equity release to help your child buy a house
You could consider releasing equity in your home to help your child buy a house. The money could also help boost your retirement fund or pay for home improvements. A lifetime mortgage, is the most popular form of equity release, as it allows you to release equity tied up in your home into cash for you to spend however you want.
Regardless of which way you decide to help your children get on the property ladder, it is important to assess how it will affect your own financial future – your mortgage, your retirement etc. Likewise, on a personal note, to avoid potential misunderstandings, it is important to be clear on whether the money given to your children is a gift or a loan, and have the written agreements in place, if it is the later.
Consulting a reputable company like Advisa, to help facilitate such agreements is the best way to ensure that both you and your children are protected, when making financial decisions.