Lending to your children – how to do it right

`The Earth is spherical, concrete is hard and there’s no rhyme for orange. And in further unsurprising news, the Bank of Mum and Dad is now a top ten lender in the UK, dishing out £6.3bn in the last year to help get their children on the housing ladder.

So much, in fact, that BoMaD would come in as the UK’s 10th largest mortgage lender, pushing to 11th Clydesdale bank which loaned a snivelling £5bn last year.

Legal & General also tells us the average parental contribution for homebuyers this year is £24,100, up more than £6,000 from last year.

We don’t want to sound smug, but we know all of this because we’ve been helping families get their feet on the property ladder since we were invented.

The thing is though, and we know this because we are one, that being a mortgage lender is complicated and there lurk pitfalls and perils for the underprepared. One of the big ones is that you should not compromise your own retirement in order to help your kids out.

This is why we have produced no fewer than four guides to help you through every step on lending to your young ones.

We have a guide on ‘ How to run the Bank of Mum and Dad’ which shows how it works and important things to consider and a ‘ Bank of Mum and Dad - A Conversation Guide’ that can help parents and their offspring when first discussing financial support.

But we have two further guides, along with our expert partners, on the legal and financial aspects of the process. These will help unknot the complications of the two trickiest aspects of securing a home for your children.

For example, what is best when considering how to fund your children’s house purchase?

Our Bank of Mum and Dad A Guide to Legal and Financial Considerations answers and gives expert guidance on key questions like these:

• Gift or loan?
• What could be the impact of Inheritance Tax?
• Can you avoid it altogether?
• What about Stamp Duty?
• Are there any other taxes which may have an impact?
• Can a child’s partner acquire an interest in the home despite making little or no financial contribution?
• Will they be renting a room to a tenant?
• How and when should you act as a guarantor?
• How should you reflect it in your Will?
• What are the important questions to ask yourself and your children?

The stories of happiness and contentment are manyfold but so too are stories of unforeseen dramas which have afflicted the unwary.

So before you start to think about getting your kids on the ladder – it’s best to watch your footing.

For more information and copies of all our Bank of Mum and Dad guides please visit our dedicated webpage.

Written by Steve McDowell

The content of this blog is Steve McDowell’s personal opinion and comment, and views expressed here are his and unless specifically stated, are not those of Family Building Society. The content on this page is not intended to be advice in any circumstances.

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