How to Help Your Children Purchase Their First Home
The ability for people to get into their own home, farm or business is perhaps more difficult now than it has been for a number of years. The desire to see your children succeed and improve their position is a desire most parents have, and one often encouraged by our adult children. Is there a safe way to do this?
The safest way to achieve this is to lend them the money, unfortunately this is not achievable for many of us.
The Risks of Using Your Property as Equity Against Your Children’s Mortgage
The most common alternative is that your debt free home or the equity in it is used as additional security for the bank to lend your son or daughter the full purchase price of the home, farm or business. Whilst you believe they can service the total loan you are ultimately risking your home and retirement future as you are assuming responsibility for the total debt.
A Safer Alternative
There is a better and much safer way to help where you reduce your liability to a smaller portion of the debt. In this situation, you can arrange to borrow the portion that your son or daughter needs from a different bank to theirs, to make up the full purchase price which means that you are only liable for that sum if it eventuates that they cannot meet the repayments.
You then just need a simple deed prepared by your property lawyer recording that this money has been lent by you and that they are to meet all the principal and interest payments on it. Where possible, this loan should be paid off in the shortest possible time – the quicker the loan secured against your house is repaid the quicker you have reduced your risk whilst successfully helping them.
In some situations you may not be able to arrange a loan from a different bank and all the money must be borrowed from the same bank as your son or daughter. In this situation you should get their bank to split their loan into the percentage you are guaranteeing and have the bank provide you with a letter confirming that this is the only loan you are responsible for and once it has been repaid your guarantee is released. You will then provide the bank with a guarantee limited to that sum plus interest and costs on that sum, what is called a limited guarantee.
By limiting your risk you are able to take over the limited loan you agreed to guarantee and meet the payments on this if your son or daughter is unable to. The bank can only look to your son or daughter for the balance.
We recommend seeking your own legal advice when looking to help your children in this way.
Our specialist property lawyers can assist you with your situation, give us a call on 0800 773 377 or send us a message.