The Mortgage Clinic: 'How can I help my children get on the ladder?'

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The Independent Online

Q. ‘I’d like to help my son and daughter get on the property ladder. I’m close to retirement, and I’ll need some sort of return. What kind of property should I consider – and should we have some sort of contract?’ GM, by e-mail

A. Few young people can afford to buy a property on their own today, so it is increasingly common for them to turn to their parents for help.

How you arrange this depends on whether you want to make a gift of the money, or to lend it, and the sum involved. If you lend the money, you could make a gift of the interest by writing off some or all of the money due every year, using these gifts as part of inheritance tax planning.

Again, you can opt for a formal contract drawn up by solicitors or draft something simpler yourself. You would need to go to a solicitor if you wanted to take a legal charge on their properties. If your support covers only part of the purchase price, a second charge would entitle you to a share of the proceeds when they sell.

You also have a few options in financing the transactions. You could sell your current home and buy somewhere smaller, giving or lending the money to your children. But if this is not an option, says Katie Tucker, technical specialist at mortgage brokers John Charcol, you could either arrange a regular mortgage on your own property, or a lifetime mortgage. Some lenders will arrange a regular mortgage for home owners up to the age of 70 or 75.

However, Tucker cautions that you will need to be able cover the cost of the mortgage repayments and interest out of your pension in retirement. “I am not keen on people on pensions borrowing into retirement as they often live on half the income they are used to so,” she says.

Another option would be a lifetime mortgage. These schemes release part of the value of your home now, with interest rolling up. This is paid back if you sell the property or when you die. Such schemes will not stretch your income in retirement, but your estate will be smaller.

Before you make any decisions, look carefully at your tax position. You will, for example, have to pay tax on any interest income you receive from your children. If you own a share in their properties, that is likely to form part of your estate for inheritance tax purposes.

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