There has been an increase lately of parents and grandparents providing their children and grandchildren with financial help in order allow them to take that important step in buying their first home.
This type of financial support is becoming increasingly common, as first time buyers struggle to save enough for the required deposit. Recent news articles have highlighted the fact that first time buyers have been putting their lives on hold in order to make their dreams of owning a property come true. Stories such as people putting off having families and getting married in order to pursue their goal of home ownership have been talked about a lot recently. Therefore, family members whom are able to assist, could have a real positive impact on such first time buyers and give them a much needed financial boost.
However, before you part with your cash for this purpose, it is extremely important that you consider a variety of ways of helping, as well as obtaining your own independent legal advice.
How about a loan?
Although gifting money may be the obvious way to help, not everyone is able to afford to do this. Therefore, you may wish to lend money to the cause instead. If you do decide to help in this way seek independent legal advice from a lawyer to ensure that a legal charge is drawn up reflecting the terms and conditions of the loan and is registered against the property. You may wish to charge interest on the amount being lent.
How about a Deed of Trust?
You may wish to contribute a lump sum of money towards the purchase price, which is to be repaid upon the sale of the property. The contribution would need to be recognised by having a Deed of Trust drawn up reflecting this agreement and confirming that the balance will be repaid from the net sale proceeds.
Acting as guarantor?
You can act as a guarantor on the mortgage, without directly lending any money. Your income will be taken into consideration by the mortgage lender, and you will act as security for the loan. However, you would need to agree to cover any mortgage payments, should they be defaulted on. This is a risk in itself and you would need to take independent legal advice on the effect of entering into this arrangement.
Making a gift?
If you are comfortable with making an outright financial contribution to the purchase of a property, without any repayment, you will need to be aware of the following:
- The mortgage lender will need to be aware of the level of your contribution and this will need to be approved before the transaction can proceed
- The lawyer dealing with the purchase, will need to have sight of your identity documents and bank statement showing the source of the monies
- The contribution can be used in conjunction with the purchasers own savings and the Help to Buy Scheme
- The gift may be subject to inheritance tax if you pass away within 7 years. It is worth taking independent legal advice both in relation to your contribution together with estate planning advice.
As welcoming as this financial help may be, it is also worth noting that first time buyers may be able to benefit through the Help to Buy Schemes which are proving extremely popular. Please do consider all of the different types of options before taking the plunge! If you would like to talk the option through with one of our experienced lawyers, please do not hesitate to contact us.
Article from Napthens Solicitors website