Let’s face it, most of us at some point will worry how our children are going ever get on the housing ladder and if they do, is it going to be in the right area and the right type of property.
I have many clients whose children are either still living at home well into their 30’s or are still living in rented accommodation. The younger generation believe it or not have a much greater desire to live in rented accommodation that you might think. It certainly gives them much greater freedom and with job and business insecurity many of them do not want to be tied down with a mortgage. Even with the cost of getting on the housing ladder falling since the height of the property boom by as much as 20-25%, getting started in property is still unobtainable for many.
If however you want to help your children get onto the housing ladder and let’s face most of us do, here are a few tips on how you can help them on their way.
- Start saving early – Get into the habit of saving money every month as soon as you can. If you can start as soon as they are born then this will spread the cost over a much longer period and consequently cost you less each month.
- Use your offset mortgage – If you currently have an offset mortgage and savings, you could use your savings funds to gift to your children for the deposit on their first home.
- Become a guarantor – It’s quite possible that if your children do not have sufficient earnings they may not be able to borrow enough money to get on the ladder. To help get around this situation you may be able to act as a guarantor of the mortgage.
- Secure loan against your home – Another option could be to take a mortgage on your own home so that you can gift money to your children. The shorter the loan period the better and it’s possible that any lender may insist upon this as it’s not a good idea to have mortgage that extends beyond your retirement age.
- Take out a joint mortgage – Become a mortgage buddy with your children. Your joint incomes may be sufficient to enable them to get on the housing ladder.
- Invest in their home – Use your own savings to actually help buy their home for them. There is no reason why you and your children cannot become joint owners. All you need to do is decide on the equity share depending on how much you invest.
- Lend the deposit – Another option is to lend them the deposit. Set up a monthly or regular repayment so that the loan is repaid. You may wish to draw up a written loan agreement to ensure that your money does get repaid to you.
- Gift to avoid IHT – And my final suggestion is to give them an outright gift of the money they need. This can be very useful if you also have an Inheritance tax liability. Provided you survive 7 years your gift to your children will be outside of your estate for IHT purposes.
One thing that you should be aware of is that gifting money to your children can be complicated if your children get divorced in the future. If divorce does occur it’s possible that some or all of the money you have gifted to your children could end up in the hands of your ex son or daughter in-law. So whatever you decide to do to help your children, be careful to consider all your options.
The above article should not be construed as advice and should not be seen as such. Always seek professional financial advice before making any decisions.
If you require investment advice for future planning please contact us as Midlands Investment Agency or call us on 01902 742221.