Help for first-time buyers

Getting one foot on the property ladder can be challenging for first-time buyers. Prices in this sector of the property market have risen by 11% in the year to the end of November 2014. Now, the average property price for first time buyers is £202,765.

Investing in property to help loved ones own their own home can be a perfectly legitimate approach to investment planning and, with careful preparation, doesn’t necessarily mean jeopardising a financial position. The buyer should have a thorough look at their own finances and be realistic of their own requirements, not just for the short-term but also over the long-term. It is important to seek legal advice and financial guidance as appropriate.

How can families help?

There are a number of ways in which parents can help children fund their first property purchase:

  1. Gift: There are no limitations to the amount of money that can be given to children as a gift, but complex regulations mean that any gift made may have a tax implication. In considering gifting funds seek appropriate legal, financial and tax advice and speak to a Private Banking and Advice Manager.
  2. Loan: Depending on needs and preferences, there is also the option of providing a loan to children to help them get on the property ladder. It is advisable to seek legal guidance and for the arrangement to be clearly documented so that the circumstances under which the loan will be repaid are clear such as through an agreed monthly payment plan or when the property is sold.
  3. Other possible routes for a parental financial contribution involve using assets such as savings or property:

  4. Equity Release Scheme: For those who are in the fortunate position of owning their homes outright equity release may be an option. It allows the home-owner to borrow money against the value of the property to effectively give children their inheritance early by giving them the money which would otherwise have been expected to be recouped later from the sale of the home when the home owner dies.
  5. Secured Loans: Securing a mortgage can be tricky for first-time buyers, so parents can help by using items such as property or savings as security in the form of a secured loan without physically cashing in any assets.
  6. Guarantor: With Guarantor mortgages, parents can include their own income in their children’s mortgage calculations, a move which could facilitate a higher level of borrowing and better mortgage terms.
  7. Mortgages: Several mortgage options exist which could help children get one foot on the property ladder. For example, a joint mortgage between parents and their children could potentially bring a share of profit when the property is sold. However, this also brings with it the liability for meeting the mortgage payments and any other expenses arising in relation to the property. An offset mortgage could be another option with either a regular re-payment plan or lump sum repayment plan but the benefit here lies in the fact that funds can be re-released at a later date if needed.

A combination of rising house prices and stricter lending criteria has made it arguably harder than ever for buyers to secure their first home. It is perfectly natural for parents and other family members to want to help first-time buyers realise their dream and there is a range of ways to help them do just that. Many of the approaches suggested above require financial and legal consideration and all carry risks, which you should also consider very carefully. So if you think you can help, speak to your Private Banking and Advice Manager to discuss your objectives and what options may be available to you.


SOURCES:

1.House prices up 11% for first-time buyers, says ONS, Kevin Peachy, BBC, 13/01/15

This article has been provided to Bank of Scotland Private Banking by external/third party contributors and contains their views as at 22 September 2015 and should not be relied upon as fact and could be proved wrong. The information and opinions may not be accurate after this date. The views expressed may not reflect the views of Bank of Scotland plc.

Bank of Scotland Private Banking assumes no responsibility for the content or any reliance upon the content of the third party websites detailed in this article.

Lending is subject to our responsible lending criteria. How much we lend, the period and rate available are subject to our assessment of your circumstances. Specific eligibility criteria and conditions apply for certain types of lending. You must be 18 or over and a UK resident to apply. Lending is subject to status and application and security may be required. Your home may be repossessed if you do not keep up repayments on your mortgage.

Tax treatment depends on individual circumstances and may be subject to change in the future.

Past performance is not a reliable indicator of future performance. The value of investments and the income from them can go down as well as up and cannot be guaranteed.

Bank of Scotland plc. Registered office: The Mound, Edinburgh, EH1 1YZ. Registered in Scotland, no. SC327000. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under number 169628.

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