Helping your child buy a home: tips and traps

Posted: 01/12/2015

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What are the options and the implications of helping your child purchase a home?

Gift or loan?

A gift to children becomes theirs so that they can do whatever they wish with the property including transferring it into joint names with someone else, selling it and spending the proceeds. 

If your child is purchasing a home with a partner or spouse, you may want to give the money to your child only; he or she and the co-owner can own the property in unequal shares declared in a document called a declaration of trust. 

If you lend the money perhaps to keep some control over what will happen to it, you could require that no sale or transfer would happen without your consent. You could take a charge over the property to give added protection - if everything goes wrong, this will enable you to force a sale.

If the child is buying with a mortgage, any mortgage company would need to consent to your loan and would take a first charge over the property. It may not agree to your having a second charge or any restrictions over the title.

A mortgage company would also need to consent to a gift and would require a statement that you are not and will not be made insolvent by the gift.

Share in ownership?

You could purchase a share in the property with your child if, for example, your income needs to be assessed in order for your child to obtain the mortgage in the first place. Note that if your child were to default on the mortgage, the mortgage company could look to you to recover the whole debt.

An ownership share could have inheritance tax and capital gains tax implications. You would need to take tax and wills advice. It is unlikely that any mortgage company would agree to your being a part owner but not a borrower.

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