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How to help your children to invest in property
The rise in the number of adult children who need help from parents and grandparents to invest in residential property has risen in recent years. Here we outline some of the opportunities to help the next generation now to ensure that your children are on the property ladder as prices rise.
As the younger generation struggle to secure mortgages, and the deposits necessary to secure them, gifting or loaning lump sums has become increasingly popular. It’s easy to take capital from savings accounts, or transfer funds from downsizing and pension pots now offer a further opportunity. When transferring large sums it’s necessary to take into account the cost of taxation and what the tax free limits are.
Annually you can transfer £3000 entirely tax free to each child and it is possible to gift £5000 to your child upon their wedding or civil ceremony, and £2500 to grandchildren on theirs (gifts should be given on or shortly before the ceremony.) Any sum over the £3000 threshold will only avoid inheritance tax if you, or your partner where applicable, live for seven years following the gift being given.
If you choose to gift a lump sum to a child expect to be asked by the lender to sign an acknowledgement that you have no rights or interest in the property and that the sum you give is a non-refundable gift.
Lending money is popular but you should first consider your own needs thoroughly and agree when, if at all, the money should be paid back. Mortgage lenders will want to know what the plan is for repayment and will factor this into their approval of the mortgage. You can outline within a ‘Deed of Trust’, drawn up by a solicitor, how the equity of the house should be divided when sold.
Joint mortgages can be beneficial too. These allow your offspring to include your income in their application and later remove you when they can afford the loan on their income alone.
Although fewer lenders offer the option to act as a guarantor since the introduction of Help to Buy there are still some available. Lenders will assess your ability to afford your own outgoings as well as the mortgage payments on your child’s property. A charge will be placed on your own home so it’s important to understand that this could ultimately be repossessed if payments are not met.
Remember that re-mortgaging can be risky and may not be possible if you have retired or are nearing retirement. If you do chose this route remember that you will owe interest on the secured loan.
Whichever route you chose helping your children to get on the property ladder can be very rewarding.
At Cairn we have a team who are dedicated specialists with outstanding market knowledge and we can deliver a comprehensive service for you and your family. We can source off market opportunities as well as project managing developments should you wish.
If you have questions regarding any aspect of residential property investment please get in touch with our team. We offer specialist advice in every aspect of property investment. You can get in touch with us via email, or by calling us on: 0141 270 7878.