Loan for Child buying house

Exodi

I don't think there's any need to be pedantic, I think it's obvious to all of us that the OP's children are adults and that the OP would not expecting a toddler to be making repayments.

Christine24 I think the most important question is - would the amount be enough to buy the house outright, or would your child also need to take out a mortgage?

If the former, I think this is a question for a solicitor as you'd need to consider all the circumstances (e.g. whether it will be secured against the property, what if your child declares bankruptcy, what if your child marries and the house becomes jointly
-owned, what happens if payment stops, etc). People nearly always advise against mixing family and money (and for very good reason),

If the latter, I'd say the arrangement is a no-goer... lenders typically do not like lending on properties where there will be other charges.

Brie

agree with @GentleGiant01

And if it's a loan even at 0% it shouldn't be considered deprivation of assets should care funding be required.  But the local authority might try to put a lien on a property to ensure they got their cut if the loan wasn't repaid.

And in case of death it would be a debt payable to the estate.  So potentially what's unpaid would come out of that child's portion of the estate or could be chased by others inheriting .

diystarter7

canaldumidi said:

Children cannot buy property. You'd need to purchase the property within a trust.

If the trust repays the loan there is no income tax to pay unless interest is also paid.

Seriously and with respect I'm not sure if your are taking the P, have no children or never heard the term "ones childeren will always be their children."

I recall talking to my customers when I was a lot younger they'd refer to their children and some of them were i their 60's.

A child will always be your child/children even when they are aged 100 and you are 125.

steampowered

If your child would like to get a mortgage, the child's mortgage lender will insist that you sign a letter confirming that the money is a gift.

All of the mainstream lenders insist on that for a few reasons:

1) As you are not on the mortgage, they want to make sure that you do not have any claim on the property.

2) If the child has debt, that would need to be taken into account in affordability calculations. Repayments on the loan would reduce the amount the child is permitted to borrow.

3) Lenders do not like borrowed deposits, they require the deposit to be genuine savings. Borrowed money is not really a deposit.

Of course there is nothing to stop your child from "gifting" the money back to you over time, but you are unlikely to be able to convince the conveyancing solicitor that they should document a formal loan for you,  because the solicitor will also be acting for the child's lender and will have to declare to the lender if the deposit is being funded by a loan.

If you do make an interest free loan to the child, there is no tax on the repayments. However the amount of the loan will be an asset within your estate for inheritance tax purposes - so if you are wealthy and your estate may be large enough to trigger inheritance tax, it would be more tax efficient to give a gift. More information here: Tax issues with family loans | Private Client Tax - BDO.  

Christine24

It would be 100%  so no mortgage. It is for an adult and would certainly have some legal advice and something drawn up but just wondered if anyone had any advice

Christine24

GentleGiant01 said:

aoleks said:

borrow amount now
keep in your savings account for 3-6 months
make regular deposits of £1-200
gift deposit to your child
declare deposit as savings

I’d be cautious of doing this, IE I wouldn’t. 

If OP is “borrowing” money to “loan” to their child as a house deposit, but claiming it is savings, if caught, can cause a LOT of headaches for everyone involved. 

If OP has £100k in the bank, and their child wishes to purchase a home of £100K, and OP would like to draw up a repayment plan so the child has no mortgage, then there is nothing wrong with this so long as the OP crosses the T’a and dots the I’s with a solicitor / or happy to risk not getting their savings back. 

Either way, it’s a great step up to be in a position to have a parent help and I really hope the child appreciates having such a great parent  

Thanks GentleGiant)1
You have got it spot on, That is what i was thinking, i just wondered if i do a  monthly repayment plan that is interest free would i be expected to pay any tax on the repayments. 

simon_or

There'll be no tax due on the capital repayments. And as it's an interest-free loan, there'll be no interest payments being received, so that's not relevant tax-wise.

As an aside, for your benefit, it would be worth securing it against the property being purchased.

dimbo61

So we finally have the full picture !
So have you looked at YBS offset mortgages ?
Your adult child takes out an offset  mortgage with YBS.
20/25% deposit which I hope they have some savings ? HTB/LISA ISA ?
You and your other half open an offset account and put in the same amount of cash that is owed on the mortgage.
Every month your child makes a mortgage payment but paying 100% capital as No interest.
You withdraw the mortgage payment each month to save into another savings vehicle.
You don't receive any interest.
Your child is not paying any interest.
There are set up fees.
You may need to gift some money to your adult child towards the Deposit.
If you fall out with your child you just close the offset accounts and take your money out.

movilogo

Loan repayments are tax free only for business - not for individuals. Even for individual buyers Buy To Let loan repayments are no longer tax deductible.