what are the implications if we help our daughter to buy

[Lord Flashheart]

Currently, it seems that by the time young people get a mortgage offer, the property they wanted it for has sold. Our daughter has seen a duplex she would like, but is unlikely to get a mortgage for it by herself. The property is £325k and she has £100k deposit. But she's self employed and only on about £27-£30k before tax as a self employed vocal coach. So the options I think we have would be to split the mortgage with her or buy it cash for her and worry about how she'll pay it back after. Apart from the 'what if my boyfriend wants to move in?' type scenario, what are the financial options or implications?

[randlemarcus]

If you have the money, buy it, rent it to her, as that also provides a nice answer to "what if the boyfriend moves in" and "what if she marries a deadbeat".

[Mowges]

Lord Flashheart said:

Currently, it seems that by the time young people get a mortgage offer, the property they wanted it for has sold. Our daughter has seen a duplex she would like, but is unlikely to get a mortgage for it by herself. The property is £325k and she has £100k deposit. But she's self employed and only on about £27-£30k before tax as a self employed vocal coach. So the options I think we have would be to split the mortgage with her or buy it cash for her and worry about how she'll pay it back after. Apart from the 'what if my boyfriend wants to move in?' type scenario, what are the financial options or implications?

The simplest method and I would encourage everyone to do this is, assuming you gave her money is to write a contract which says it is a loan and it is repayable on demand. You do not have to charge interest but both you and your daughter need to get independent advice and for it to be a formal witnessed document. Otherwise her future partner can and will take their share of your money. Other things to consider are if you enter into the mortgage then you expose yourself to CGT, if you happen to die within 7 years any potential gifts will be clawed back (tapered). Second homes attract higher Stamp Duty.

[darreni]

Mowges said:

The simplest method and I would encourage everyone to do this is, assuming you gave her money is to write a contract which says it is a loan and it is repayable on demand. You do not have to charge interest but both you and your daughter need to get independent advice and for it to be a formal witnessed document. Otherwise her future partner can and will take their share of your money. Other things to consider are if you enter into the mortgage then you expose yourself to CGT, if you happen to die within 7 years any potential gifts will be clawed back (tapered). Second homes attract higher Stamp Duty.

That will also ensure she is unable to obtain the required mortgage.

[Stevil]

Mowges said:

Lord Flashheart said:

Currently, it seems that by the time young people get a mortgage offer, the property they wanted it for has sold. Our daughter has seen a duplex she would like, but is unlikely to get a mortgage for it by herself. The property is £325k and she has £100k deposit. But she's self employed and only on about £27-£30k before tax as a self employed vocal coach. So the options I think we have would be to split the mortgage with her or buy it cash for her and worry about how she'll pay it back after. Apart from the 'what if my boyfriend wants to move in?' type scenario, what are the financial options or implications?

The simplest method and I would encourage everyone to do this is, assuming you gave her money is to write a contract which says it is a loan and it is repayable on demand. You do not have to charge interest but both you and your daughter need to get independent advice and for it to be a formal witnessed document. Otherwise her future partner can and will take their share of your money. Other things to consider are if you enter into the mortgage then you expose yourself to CGT, if you happen to die within 7 years any potential gifts will be clawed back (tapered). Second homes attract higher Stamp Duty.

I'm pretty sure the mortgage company will want to know where the deposit funds come from and if it's from a parent they'll want to see proof that it's a gift and not a loan. By drawing up that contract they'll probably not accept it as part of the deposit or deduct it from the affordability calculations.

Not purporting to be a mortgage advisor and I'm sure someone else more qualified can chip in if I'm wrong, just basing it off the experience we had when we had to provide evidence of our deposit funds.

[Mowges]

Stevil said:

Mowges said:

Lord Flashheart said:

Currently, it seems that by the time young people get a mortgage offer, the property they wanted it for has sold. Our daughter has seen a duplex she would like, but is unlikely to get a mortgage for it by herself. The property is £325k and she has £100k deposit. But she's self employed and only on about £27-£30k before tax as a self employed vocal coach. So the options I think we have would be to split the mortgage with her or buy it cash for her and worry about how she'll pay it back after. Apart from the 'what if my boyfriend wants to move in?' type scenario, what are the financial options or implications?

The simplest method and I would encourage everyone to do this is, assuming you gave her money is to write a contract which says it is a loan and it is repayable on demand. You do not have to charge interest but both you and your daughter need to get independent advice and for it to be a formal witnessed document. Otherwise her future partner can and will take their share of your money. Other things to consider are if you enter into the mortgage then you expose yourself to CGT, if you happen to die within 7 years any potential gifts will be clawed back (tapered). Second homes attract higher Stamp Duty.

I'm pretty sure the mortgage company will want to know where the deposit funds come from and if it's from a parent they'll want to see proof that it's a gift and not a loan. By drawing up that contract they'll probably not accept it as part of the deposit or deduct it from the affordability calculations.

Not purporting to be a mortgage advisor and I'm sure someone else more qualified can chip in if I'm wrong, just basing it off the experience we had when we had to provide evidence of our deposit funds.

It is a question a bank will ask. If it were me i would do as suggested and also guarantee the mortgage. This will allay any issues. Or the OP could simply guarantee the mortgage without providing further cash assistance.

[Mortgage_tom]

Lord Flashheart said:

Currently, it seems that by the time young people get a mortgage offer, the property they wanted it for has sold. Our daughter has seen a duplex she would like, but is unlikely to get a mortgage for it by herself. The property is £325k and she has £100k deposit. But she's self employed and only on about £27-£30k before tax as a self employed vocal coach. So the options I think we have would be to split the mortgage with her or buy it cash for her and worry about how she'll pay it back after. Apart from the 'what if my boyfriend wants to move in?' type scenario, what are the financial options or implications?

Things to consider;

1). If you go on the title with her then additional rate stamp duty will be payable (Extra 3%).
2). If you get a mortgage with her, then your age will most likely effect the length of the term she can get and thus the payment.

Find out what the max mortgage she can get is and gift her the difference is the simplest solution.

I think your safe from boyfriends until later when then sell that house and use the equity towards another in joint names.

Edited by Mortgage_tom on Wednesday 7th July 19:32

[Halitosis]

We've just done similar for our son, who got the keys to his first home this week. He had a deposit and we remortgaged our own home with the help of Sarnie of this parish. Gifted him the money (no paperwork) and he purchased his flat outright. The conveyancing solicitor gave us the option to have our names on the deeds or register a security over the property but we declined.
It was all relatively painless with just the usual evidence/ID/proof of income etc., and the loan is on an interest rate that he could only dream of

Edited by Halitosis on Monday 12th July 19:43

[Mowges]

Halitosis said:

We've just done similar for our son, who got the keys to his first home this week. He had a deposit and we remortgaged our own home with the help of Sarnie of this parish. Gifted him the money (no paperwork) and he purchased his flat outright. The conveyancing solicitor gave us the option to have our names on the deeds or register a security over the property but we declined.
It was all relatively painless with just the usual evidence/ID/proof of income etc., and the loan is on an interest rate that he could only dream of

Edited by Halitosis on Monday 12th July 19:43

Is he paying off your mortgage? You mentioned his place was a cash purchase. Very generous parent . My parents have considerable wealth-they’ve never done such a thing. It’s stand on your own and live within your means.

Edited by Mowges on Monday 12th July 23:06

[Lord Flashheart]

brickwall said:

Mowges said:

Halitosis said:

We've just done similar for our son, who got the keys to his first home this week. He had a deposit and we remortgaged our own home with the help of Sarnie of this parish. Gifted him the money (no paperwork) and he purchased his flat outright. The conveyancing solicitor gave us the option to have our names on the deeds or register a security over the property but we declined.
It was all relatively painless with just the usual evidence/ID/proof of income etc., and the loan is on an interest rate that he could only dream of

Edited by Halitosis on Monday 12th July 19:43

Is he paying off your mortgage? You mentioned his place was a cash purchase. Very generous parent . My parents have considerable wealth-they’ve never done such a thing. It’s stand on your own and live within your means.

Edited by Mowges on Monday 12th July 23:06

Indeed gifting enough to do cash purchase is extremely generous!

In most cases the arrangement I’m aware of is
- Parents give child gift of X
- Child has own savings of Y
- Child can get mortgage of Z on the basis of their income

Child’s budget is therefore X+Y+Z….off you go and get buying.

And that is exactly what we are now doing. Hopefully at some point her boyfriend will want to commit to buying with her and maybe we'll get a bit of our 'gift' back to top up the now gaping hole in our retirement pot!