Is helping your child onto the wealth ladder simply a matter of handing over the money? Darren Polson explains the different financial routes and how they will benefit all parties
The question
My son is a first time buyer at the ripe old age of 35! I would like to help him buy his first home but need advice on the best way to do this.
I have £45,000 in savings which I have set aside for his first house. He also has some savings that he can put down as a deposit, so in total he has £60,000.
Is it best to just hand the money over to him or is there a way I can take over the mortgage and become a co-owner? I won’t be making the monthly payments and I already own my own home, so I’m not sure about the validity of the last option.
But simply handing over the money seems a bit irresponsible in case, for example, he has met a partner who has moved in, or if he has to move in the future. Advice would be gratefully received.
Darren’s answer
It’s great to hear that you can help your son onto the property ladder, and that you have a few options available to you.
Gifts
If you provide money in the form of a gift (which essentially means handing over the money), then you waive all rights to those funds.
The advantage of this approach is that you do not have to be responsible for the mortgage nor do you have to provide any additional documentation other than proof of where the money is coming from.
If you are unsure of the parameters of the money you are providing or if you would like a guarantee, it is worth seeking legal advice.
Mortgage of joint borrower, sole proprietorship (JBSP).
Alternatively, Joint Borrower, Sole Proprietor (JBSP) mortgages are available, which essentially guarantee mortgages. These are intended for customers who do not quite have the income or credit history to take out a mortgage on their own. This helps them get on the wealth ladder with (in most cases) the support of a parent.
In this scenario, your son would own the property, but you would both be jointly and severally liable for the mortgage. You would also be subject to the lender’s application checks for affordability and credit score.
If a partner were to move in, the mortgage would remain unchanged because your son would still own the home and any surplus he would get from the deposit. If he has sold the property or taken out a new mortgage to add another person, he can return the money to you at that stage (if you want the money back) or use this money for his next purchase.
As mentioned above, independent legal advice is recommended.
How to choose the best option
The first step on your journey is to talk to a mortgage broker who can guide you through the process and provide a decision-in-principle decision that will help your son know how much he can borrow before making an offer on a property.
A mortgage advisor can also discuss your options in more detail to help you with your decision.
Meet our expert…
Darren Polson is head of mortgage operations at Aberdein Considine. He has been writing a regular column for Welke Hypotheek for over three years and answers YOUR mortgage questions every week.
If you have a question for Darren, please email kate.saines@emap.com or leave a message in the comments below.