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Can you still help your children onto the property ladder?

Mums all over the country will have been receiving breakfast in bed, cups of tea and bunches of daffodils today, as the nation celebrates Mother’s Day.

However, with it harder than ever for first time buyers to get a grip on today’s housing market, many mums are deserving of more than a cup of tea, as the Bank of Mum and Dad is one of the first places young people turn for assistance to take their first step onto the property ladder.

There are a few options open to parents who want to help their children fly the nest, but it is important to be aware of the potential pitfalls that offering a helping hand can bring…

Cash gifts

Despite Help to Buy schemes meaning that first time buyers typically only need a 5% deposit to get their first step on the property ladders, with the average house price in the UK currently standing at £212,000, this still represents a deposit of around £11,500 – a figure out of the reaches of many young people today. If you want to help your child with a deposit, you are able to do so with no tax implications, most mortgage lenders will simply ask for a letter confirming that the money is a gift, and you are not expecting it to be repaid.

Buying as a baby

The National Association for Estate Agents (NAEA) has estimated that by 2025 property prices will have increased by a further 50%, leaving many first time buyers unable to consider getting a step onto the property ladders. Some parents are choosing to invest in a property whilst their children are still very young, and hold the property in the child’s name, in the form of a trust. You would then able to rent out the property until your children come of an age where they want to take advantage of the home.

There are many issues to consider if this is the route you are considering. Namely, you must be aware that you as the parent will become a landlord for the period until your child is ready to take on the property themselves. There is plenty of elements to being a landlord over and above just making sure the property is tenanted, and resent research has shown that over 30% of landlords believe the job to be more stressful that they first anticipated – be aware that this option isn’t necessarily the easiest route, but it does provide an income for the duration of your investment, and would help you take advantage of the property market today – rather than holding tight and not knowing what tomorrow might bring!

Flying the nest

Some parents help their children onto the property ladder by purchasing an investment property and allowing their child to live in it at minimal cost, or even rent free. This method allows the young person to get accustomed to the realities of managing a home, whilst still being able to save for a deposit without having to spend hundreds of pounds a month on rent. The 3% stamp duty, which will be payable on all second or buy-to-let homes from April 1st will have an impact on this option, and if any rent is taken from the child the parents will incur additional income tax charges.

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