Can I lend my child money to buy a house? Conveyancing and Property
Yes, borrowing from friends and family for property transactions has become the norm. However, it is important that arrangements of this kind are properly formalised.
Here are a few points to bear in mind:
- If you are providing your child with money towards their home as a gift, the mortgage lender will require you to sign a deed of gift confirming that you have no right to the money once it has been given to your child. Some mortgage providers will also require you to sign another document confirming that you have no interest in the property. Providing money as a gift does mean losing all control over it, so think carefully before doing this.
- You could create a legal charge against the property, establishing a legally binding loan which would be repaid when the property is sold or following repayment of the mortgage. This option means you will recoup your money should your child get into financial difficulties or go through a divorce.
- A declaration of trust is a sensible way of setting out the basis on which the loan is given without affecting the legal ownership of the property. It enables you to clarify things like how proceeds from the sale of the property will be shared between you and what will happen in the event of a relationship breakdown.
- Alternatively you could enter into an arrangement where you own the property jointly with your child. In these circumstances you would be obliged to comply with the terms and conditions of the mortgage and there might be tax consequences related to you owning a second property that you do not live in.