A foot on the property ladder
15 August 2008
Faced with high house prices and interest rates, many first-time buyers have no option but turn, once again, to family.
Parents looking to help their children buy a home will usually make a gift of the deposit as children can own the property themselves at 18.
There can be tax considerations and you can find out more by looking at our article in The basics.
Renting vs. buying
Most young people soon become aware of how expensive getting that first foot on the ladder can be. It’s not just the property, or the need to furnish it, stamp duty alone pushes any budget to the limit.
Faced by rising prices year-on-year many turn, albeit reluctantly, to their parents for help. Borrowing as a stop-gap, to help secure the mortgage deal, which with the mortgage provider’s permission, can be supplemented by renting out rooms.
Forking out money to help your child on to the property ladder may seem far-fetched, but research reveals that this is a stark reality for an increasing number of families.
Being a landlord
It can be a real problem if you get the wrong lodger but there are tax breaks such as Rent-a-room relief which can make this financially worthwhile.
Acting as a guarantor
Another option is for parents to be a guarantor, which effectively means that you sign a contract agreeing that you will pay the mortgage if the child defaults on their monthly repayments.
Being a guarantor means that a child will often be able to borrow more than they could on their own as the parent's income will be taken into account.
Be warned that you will be named on the mortgage and will be jointly and severally liable for the loan. That means you can be pursued for the full debt if your children default.
The mortgage will also show up as a debt if the parent looks to borrow money themselves later on - for example, if they want to get a second mortgage - and so they may not be able to borrow as much.
