There are lots of ways to help your children get on the property ladder. Not all involve paying cash. Here are some ideas you could consider.
Under current rules, you can pay into a Junior ISA for your child up until their 18th birthday. You can also open a Cash ISA for your child from their 16th birthday. This means that they have two years with two ISA allowances.
If you have the cash, this can be a great savings opportunity. Keep in mind, however, that the money in the Junior ISA will belong to your child from their 18th birthday. The money in the cash ISA will always belong to your child. This is part of the reason why it’s so important to teach them financial responsibility from an early age.
When they turn 18, a Lifetime ISA might be a useful way for them to save for their first house. It is, however, important to note that Lifetime ISAs can only be used to save for a first property or for retirement.
In other words, if they need to withdraw the money for any other purpose, they will pay a penalty for doing so. The penalty is currently set at 25% of the total amount withdrawn. This means that they will effectively be charged for withdrawing the money they put in as well as losing the bonus.
The more your children can do for themselves, the less money they’ll need to spend getting other people to do things for them. For example, if your children know how to cook from scratch, their shopping will cost them a lot less than if they’re buying convenience foods. (They’ll probably eat better too).
DIY skills can also come in useful. Properties in need of some work are often more affordable than properties that are already in a “live-in” state. With that said, if you’re planning on helping your children to learn DIY skills, it’s also important that they learn to know their limits. Botched DIY jobs can be expensive!
This option should be approached with great caution, if at all. With that said, the option is there for a reason and it can sometimes make sense to use it.
There are two main ways of being a guarantor. Firstly, you can be formally listed as a guarantor on a mortgage. Secondly, you can formally loan the buyer your savings for a certain length of time.
With the first option, your risk is usually much higher since you are guaranteeing the entirety of the mortgage. This means that it’s particularly important to have legal safeguards in place to protect yourself. For example, you could oblige the borrower to remortgage after a certain period (e.g. five years) so you can be released from your guarantee.
There are, however, two important caveats to this. Firstly, you need to be prepared to enforce your legal safeguards if need be. When dealing with children, that may not be as straightforward as it sounds (especially if grandchildren are involved).
Secondly, you may find that your children simply can’t fulfil their end of the deal. For example, they may not be able to get a new mortgage. You, therefore, need to have a clear plan in place for what to do in that situation.
Alternatively, you can formally loan some of your savings to your children to be counted towards their deposit. Once your children have built up enough equity in their home, your savings will be returned to you, with interest. This is less risky but not risk-free. You may therefore want to look at having safeguards in place.
For further help or mortgage advice, please do get in touch.
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