A hand up onto the property ladder

published 5 November 2014

With property prices at record levels, especially in London, more and more first-time buyers are getting help from their parents to get on the property ladder.So how can parents help their offspring buy their first house and what are thepotential risks?

Until recently, several banks allowed parents to guarantee their offspring's mortgage, by pledging to make upany shortfall in payments. That has changed over the last year, but the small challenger bank, Aldermore, still offers a 100% mortgage deal with a guarantee.

So, you can borrow at the bank's standard three-year fixed rate if a parent or grandparent is willing to pledge the value of their house as collateral. The downside is that the guarantee period can only last for ten years.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Some parents prefer to help by providing some, or all, of the deposit. Each parent can make cash gifts of up to £3,000 each year, which won't be liable for inheritance tax (IHT) when the parent dies. Any larger gift won't be liable ifthe parent dies at least seven years after the gift was made.

Another option is for parents to buy a property outright in their offspring's name. Since this involves relinquishing control, there is nothing stopping them from selling (or mortgaging) the property and wasting the proceeds. If they marry and then get divorced, the partner will have a claim on a share of the house.

As for younger offspring, children under the age of 18 are not allowed to own property. So if you want to buy a property for a minor, you will have to put it in your name and then give it to them when they become a legal adult. The problem is that the IHT clock only starts from the date of the gift.

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri