(Copyright Financial Times Ltd. 2009. All rights reserved.)The scarcity of mortgages available to first-time buyers has forced many potential buyers to seek help elsewhere - and many are turning to their parents.
With the costs involved in buying a home, including a deposit, now close to pound(s)28,000, according to the Royal Institution of Chartered Surveyors, many buyers are unable to purchase a home without their parents either lending them money or acting as mortgage guarantors.
But lawyers warn that unless care is taken when this help is agreed, problems can arise later.
It is important, says the Law Society, to be clear from the outset about the terms under which the money is being provided.
Unless there is documentation stating that money provided is a loan, children are under no legal obligations to return it, nor is the parent entitled to a portion of the profits of the house when sold.
However, if the money is given as a gift and the parent dies within seven years of handing it over, the child could be liable for inheritance tax on it.
Jason Butler at Bloomsbury Financial Planning says that although some families may feel uncomfortable turning an offer of help into a formal agreement, it could save trouble later.
He says producing a loan document can be as simple as writing down the amount, the rate of interest charged, and how and when the capital is repayable.
A similar approach should be taken if parents agree to be mortgage guarantors.
Helping children as guarantors can have a negative impact on parents' credit records and hinder their chances of borrowing more money if the children stop repaying the loan.
A clear agreement from the start about what will happen if the children are unable to pay back the loan will save awkward negotiations at a later date.
Credit: By Elaine Moore
My Research