The pros and cons of helping your child buy a house

Finding the deposit for your first house can be a struggle, and many millennials and Gen Z zoomers are turning to ‘The Bank of Mum and Dad’ (BOMAD) as their funding route of choice.

According to recent research by the estate agent, Savills, BOMAD lending supported 49% of first-time UK buyer purchases in 2021. The total contribution from parents came to a staggering £9.8 billion in 2021, helping young adults get their first foot on the property ladder.

So, if your kids come looking to borrow your hard-earned cash, what’s the best way to help? And can you afford to lend the money, while also protecting your own assets in the long term?

Can you afford to become a bank?

As parents we want to do the best for our children. Helping them buy a house gives them some financial stability and sets them up for a brighter financial future. But it’s important that you don’t overstretch your own finances and put you and your spouse into a potentially risky position.

Don’t forget:

• You still need enough money to support yourself comfortably during retirement.
• Money-lending can sometimes cause arguments in the family. It can get complicated if your children fail to make their repayments, or if they split from their partner etc.
• If you have more than one child, it’s tricky to balance out the needs of each one.
• Gifting money can have inheritance tax consequences, so talking to your tax adviser before you hand over any cash makes good sense.

You’ll need to consider all those factors before you make a decision.

What are the best ways to help your children financially?

If you do decide to support your children in their efforts to buy their first home, there are lots of ways to help, including:

• A cash gift to help with the deposit
• A loan to help with the deposit
• Being a guarantor of their repayments
• Co-owning the house with them
• Letting them live with you rent-free while they save up.

A gift is the simplest and cleanest – your money might be gone but so are your obligations. The other options all require a bit more negotiation and potential compromise.

Talk to us about lending cash to your children

As your accountant, we can talk you through the pros and cons of the various options for lending to your kids. We can help with any tax planning and even put you in touch with the best local lawyers, to help you get the legal side sorted.

If you’re planning to help your kids with their first property, come and have a chat with us first.