Your kids are for life, not just for Christmas
Posted: Monday 30 January 2012
Your kids are for life, not just for Christmas
These are really difficult times for first-time buyers trying to get onto the property ladder.
The Bank of Scotland’s recent First-Time Buyer Review has revealed that the number of first-time house buyers in Scotland has reached its lowest level for 35 years. Only 17,000 people entered the market last year as buyers, which is 4% less than in 2010 and the lowest annual total since 1976. You can read the BBC's coverage here: http://www.bbc.co.uk/news/uk-scotland-scotland-business-16325943
The need to put down a bigger deposit and concerns over the economic climate are a real worry for people, with the report stating that the average deposit in the first 11 months of 2011 was £22,396. As a proportion of the purchase price this is an increase from 10% in 2007 to 21% in 2011.
What can you do to help?
According to the Council of Mortgage Lenders, around 80% of first-time buyers under 30 years old are receiving financial help from their parents. There are a number of options for parents who are able and willing to assist their children: due to the low level of interest on savings accounts, some parents gift their children the money for the deposit. Other parents put the property in a Trust for their children so that they still own the property, and some invest money as a deposit themselves rather than simply gifting it to their children.
In any of these situations, there are several legal issues to be addressed. For example, if the money is a loan, how and when any repayments become due? Are there any tax considerations? If the child is buying with someone else, what will happen if their relationship breaks down?
Should you do anything to help?
There is of course no right answer to this question; it will entirely depend on your circumstances. As well as helping your children though, this type of planning can also help you to reduce any tax which you might suffer on your estate.
It is vital that parents and their children seek legal advice and enter into a formal agreement in order to protect the investment. Morton Fraser’s Private Client team can assist with drafting and advising on the structure of any investment agreements between parents and their children as first-time buyers.
For further advice, please contact Sue Hunter, Partner and Head of Services for Individuals and Families at Morton Fraser on sue.hunter@morton-fraser.com or 0131 247 1054.
