01 December, 2010
First of all, you are not alone, statistics indicate that up to 80% of first time buyers do so with assistance from their parents, but you do need to consider very carefully who will own the property and on what terms.
If your daughter is to own the property outright, are you gifting the money to her or is it a loan repayable. If it is a loan are you going to charge interest, and at what rate, and how long a period does your daughter have to repay it? Is it to be secured against the property?
Remember that if your daughter is getting a mortgage, the Lender will need to be informed that you are contributing to the purchase price, and if you want a loan securing on the property she is buying, then it will have to rank behind the Lender.
You also need to consider that circumstances may change in the future. Although you may be happy to gift your daughter a substantial amount of money now, if it is an unconditional gift, you cannot change your mind if you are unhappy with your daughter's decisions, for example if she uses the equity in the property for further borrowing, or decides to co-habit. If your daughter marries and subsequently divorces, her husband may have a claim over the property.
If the property is going in the joint names of you and your child, and there is to be a mortgage, remember you will be jointly and severally liable for the debt, even if there is an agreement that your daughter will make the monthly payments.
We would strongly recommend that you draw up a declaration of trust to set out the shares in which the property is owned and who is responsible for mortgage payments and other outgoings such as insurance, utility bills and major items of repair.
For further information and advice please email Susan Piela or call 01772 220022.