How Can Parents Provide Mortgage Help for Their Children? Part 1

by Mark Johnston

With the tightening of mortgage lending criteria, rising mortgage costs and the credit crunch, getting on to the property ladder in the UK is an increasingly difficult task for many first time buyers.

The Office of National statistics recently revealed that there are approximately 3 million adults between the ages of 20 to 34 still living with their parents, this figure is up 20% from figures in 1997.

Therefore life still remains tough for first time buyers and only those with a squeaky clean credit history and enough savings to put down a deposit can hope to get on to the ladder.

The struggles first time buyers face mean that more and more are turning to their parents for help in raising a deposit or to even qualify for a mortgage in the first place.

According to the Council of Mortgage lenders (CML) 80% of would be first time buyers aged under 30 are already receiving financial help in some form from their parents.

Andy Gray, head of mortgages at Barclays, states “many parents have already realised the return from buying their homes and want to give their children this important step towards independence”.

Fortunately, there are still several financial products on the market at the moment that allows parents to help their children buy their own property.

Since the credit crunch lenders are unwilling to lend to people with out a deposit and now most of them save their best rates for those borrowers who can stump up a deposit of at least 30%, therefore it is little wonder that deposits are the main barrier for first time buyers.

In light of this recent research has shown that the most common way a parent helps their child on to the property ladder is by way of a ‘money gift’ in order to provide them with a deposit.

David Hollingworth, mortgage expert atLondonand Country, states “deposits are crucial at the moment, so this is the most popular way a parent can lend a helping hand”.

Generally, lenders do not mind if a parent provides the deposit that is as long as it is not in the form of a parental loan which has a specific date on which it is to be repaid. Therefore the parent may be required to provide a letter confirming that the deposit has been given as a gift.

If parents choose the make the deposit in the form of a gift they are able to do so in any amount and tax free, but they should also take inheritance tax advice.

Many other parents choose to help their children with the provision of an interest free loan for the deposit amount. If this is the case then it is always a good idea to set down a repayment schedule from the start.

It is worth also noting that if parents are not keen in either of the other options they can reflect their contribution in the form of a ‘declaration of trust’ or ‘deed of trust’. This is a private legal document which is separate from but also runs alongside the property deeds and usually states that they will receive their loan amount back on the sale of the property.

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