It may be preferable for parents to lend the deposit but in this case, the lender may make a reduction on the amount that they will lend in the form of a mortgage.
For IHT, we would look to help parents to do their sums to clarify how much is affordable for them. If the money is loaned, the child may not be in a position to return the money quickly if the parent needs it back.
The money will, of course, remain within the parents' estate for IHT purposes.
Another concern for mum and dad is if their child is buying jointly and things do not work out. How do they ring-fence the money so it stays within the family?
Good conveyancers will discuss the ways in which the gift can be made, as well as how the property is owned, such as by a declaration of trust or buying as tenants in common.
Using their own home
Many of the considerations here are common to outright gifting, in that the parents need to make sure that they are not going to jeopardise their own financial plans.
However, using their own home, to either release capital or allow a charge on it, may be an acceptable way to help.
This is a useful way for those who are willing and able to assist their children and are not looking to sell or move home in the foreseeable future.
Remortgaging their home to release the equity to gift to their children can be done either through a traditional mortgage, or an equity release plan if they meet the criteria (minimum 55 years of age) and this is the only way of helping.
Again, individual circumstances will determine whether a taking out a traditional mortgage is possible or whether equity release is required.
Under equity release, the younger you are, the less you can borrow. Generally the interest is not repaid, and lenders are conscious of the time the loan has to compound.
Equity release schemes are designed to be in place until the borrower either dies or moves into long-term care. It may not be the best option for everyone.
However, if the borrower and their families are comfortable with this option and it is the only means available to support a property purchase, then it can work well.
Some schemes permit borrowers to overpay up to predetermined limits, so in effect if they are able to make payments, then borrowers can arrest the rate at which the loans typically roll up, or potentially stop it altogether.
Equity release also creates a debt against the estate for IHT purposes, so can be an acceptable way to make gifts during the parents’ lifetime.
