With mortgage lenders asking for increasingly large deposits - typically 20-30% - and first time buyers struggling both to find a deposit, and make monthly repayments on joint salaries, it is perhaps unsurprising that many are turning to their parents.

With the average first time buyer now already in their early thirties, and the changes in university funding leaving potential home owners with substantial debts that preclude saving for the future, the situation can only get increasingly difficult.

While many parents naturally want to help, advancing money to your child and their partner to enable them to buy their first home can be fraught with pitfalls.  The implications of making such a generous offer are complex and often not fully understood until something challenges the arrangements - by which time it can be too late. Yet, with the right advice, appropriate agreements can be put in place that ensure clarity and safeguard all parties.

If you are thinking about advancing your child money, you will need to consider:

• are you giving them the money outright?
• are you loaning them the money?
• are you intending to retain an interest in their property?

Each of the above has implications. If you choose to provide either a gift or a loan, your child's lender will need to agree. Understandably, they may be more cautious about money provided as a loan. You also have to consider what action you would realistically take should your child default on the loan terms.
 
If you are providing funds as a gift and your child is buying a property with a partner, it may be wise to discuss whether the gift ought to be protected so that, should their relationship break down, your child's contribution to the purchase price can be identified separately. Making a gift rather than retaining an interest in the money could also provide Inheritance Tax benefits to your estate.
 
If your intention is to purchase jointly with your child, you would also need to be a party to the mortgage and therefore liable for the mortgage debt - whether you live there or not. So, in the event your child defaults on the mortgage, you could be liable to repay the entire debt. Joint ownership of a property that is not your principal residence may also have Capital Gains Tax implications when sold.

Each family's financial circumstances are different, so a frank and open conversation between interested parties about where the money is coming from and on what basis it is being offered is the first step. For instance, will you need to draw down a percentage of your pension, re-mortgage your own property or even sell some ISAs? If you need to do any of these, will advancing the money leave you exposed in later life, and, should your situation change, would your child be able to return the favour and help you out financially?

Despite these complex issues, should you decide to go ahead with offering financial assistance and provided you and your child are in agreement, we will work with you to create the most appropriate solution. This could be a Declaration of Trust. Put simply, this agreement sits behind the legal ownership of the property and sets out the basis on which the equity within the property would be divided in the event of a sale. We will help you to explore your options, consider all the implications, in order that the most appropriate solution is found for your family's needs.

For an initial informal discussion, please call our legal helpline on 03700 868686.

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All documents should be read and used in accordance with the terms and conditions. This document is for your general information only and is not a detailed statement of the law. It is provided to you free of charge and should not be used as a substitute for specific legal advice. If you require specific legal advice please contact our helpline on 03700 86 86 86.