Property and parents helping with deposits

January 25, 2017

Parental support in buying property

There are two key ways in which parental support works.

The first is where the parent lends (or gifts) the deposit, but then the property is just in the child’s name.

The second is where there is a shared ownership, and the parent treats their interest in the property as an investment i.e. they expect a share of the proceeds if/ when the property is sold.

Which is best?

Shared ownership with parents will generally make it easier to get a mortgage and borrow a larger sum from lenders.  However, it does mean that your parents would be a party to the mortgage, which is not right for every family.  

You also need to check with your lender, as some lenders will only lend up to a certain age (typically 65 or 70) so if your parents are approaching that age, you may only be eligible for shorter term mortgages.

If instead the deposit is loaned or gifted, then a side document is drawn up to confirm the nature of that agreement.  As far as the mortgage lender is concerned, the property is owned entirely by the child and the parent need not be a party to the mortgage.

Tax implications

SDLT is charged at a higher rate if you already own a property.  This is putting some parents off the shared ownership route, and the deposit loan is becoming more popular.

Help to Buy Schemes may also only be available if you buy entirely in your name as first time buyer (check the details of your scheme), in which case a loan of the deposit may be better.

Capital Gains Tax is payable on the sale of second properties.

Any other factors?

As many parents are concerned that their money should not pass to a co-habitee (particularly where the child is not yet in an established relationship) one common reservation is to ensure that the deposit is protected should the relationship break down.  One way of doing this is to have a short term loan, which can then be converted to a gift in a few years time.

In broad terms though, if you are buying a house with financial support from family, it is important to set out how this is being done.  Edward Hands & Lewis Solicitors can draw up all relevant documents alongside dealing with the conveyance, should this be needed.  We also have in house Chartered Tax Advisers should estate planning be part of the objective.  Please contact us for further details.

The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.

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