How you help can impact your own financial future. Help too soon and you may feel short financially now. Help later and you’re leaving a longer time for prices to rise on the homes your loved one may want to buy.
Savings – cash ISA or otherwise
If you’re lucky enough to have been saving for a while you may just already have the lump sum you want to provide.
If your funds are in a cash ISA (Individual Savings Account) though, just remember any money that you withdraw will lose its tax-free status.
If your loved one is still a few years away from buying their own place, you’ve still got time to open a cash ISA in your name and pay into it regularly or subscribe to an existing ISA that you hold. Any money paid into an ISA must belong to the account owner. Taking advantage of tax-free saving over several years should get you into a good position to help. You can also look at a regular savings account which can pay a higher rate of interest if you put in a certain amount of money each month.
Take a look at our range of ISAs, savings accounts and investments
Withdrawing from your pension early
You can take out up to 25% of your pension pot tax-free from the age of 55. While most personal pensions set a specific age when you can start taking money from your pot, it's not normally before 55.
Please get in touch with your pension provider if you're not sure when to take your pension. There may be tax implications of removing money from your pension early.
For more information, please contact an independent tax adviser or HMRC directly.
Some of the things to consider:
- What’s left in your pension pot might not grow enough to give you the income you need to last you into old age.
- Your pension pot reduces with each cash withdrawal. The earlier you start taking money out of your pot, the greater the risk your money could run out.
- If there are administrative charges for each withdrawal they could reduce the size of your pension pot.
- Any money taken out of the pension pot which grows in value is taxable whereas it grows tax-free inside the pot.
- Once you take money out, you can’t put it back in.
- Taking cash lump sums could reduce your entitlement to benefits now or as you grow older.
Learn how pensions work with the government’s pages
Unlocking value from your property
If you’re asset rich but cash poor you could look to use your property as a way of releasing cash from your home to help with a deposit. There are a number of ways you can do this.
This is possible when you own your home outright and is normally done using a lifetime mortgage. These types of mortgages allow you to:
- borrow up to 50% of the value of your house
- not make any repayments while you’re alive
- repay the borrowing after your death through the sale of your home.
Interest is usually added to the amount that needs to be repaid so it’s worth seeking independent financial advice before going down this route.
If you have a mortgage on your own home and have equity, you could remortgage your property with another provider, or borrow more with your existing provider, freeing up equity in your house as cash.
Remember though, that increasing the size of your mortgage may mean larger monthly payments or increasing the time it would take to pay it off. Make sure you understand how this could impact your financial future
Use our mortgage calculator to see how much you could borrow or speak to your existing lender if you want to borrow more.
Moving to a smaller property could help you free up some cash or equity for your loved one by saving on your mortgage.
Downsizing is a difficult decision though. You’ll have less space, have to leave memories of the former family home behind and possibly move to a new area. Alternatively, a smaller home and new location could be a fresh start and easier upkeep. Take a look at the whole picture before making a decision.
Help without giving money
There are several ways you can help your loved one get onto the property ladder without having to give or lend them money.
This type of mortgage lets you help your loved one get onto the property ladder using your own assets as security. With this type of mortgage, you’d be liable for any payments missed by your loved one and would be required to make the payments. A charge would also be held against your own house by the mortgage provider as extra security so it could be at risk of repossession if payments aren’t made.
In a joint mortgage with your loved one you’d be equally and legally responsible for the mortgage repayments and named on the house deeds.
If you still have a mortgage on your own home, you’d need to make sure that a lender would be comfortable that you could afford to pay for 2 mortgages.
Taking out a joint mortgage also means your own credit worthiness will be taken into account during the mortgage application, which could mean your loved one may be able to afford a more expensive house. It also means your credit file will be linked to your loved one’s, so if either of you experiences a negative effect on your credit file it will impact the other too.
Also, as you’re technically buying a second home additional stamp duty would be payable on the purchase. There may also be capital gains tax implications when the property is sold. For further information please contact an independent tax adviser or HMRC directly.
Lastly, you’d need to update your will to show what you want to happen to your share in the property if you die.
This type of mortgage allows you to link your savings to your child's mortgage through a separate savings pot which can be added to and reduced at any time.
Any money put into the savings pot offsets and reduces the mortgage balance, so your loved one only pays interest on this reduced amount lowering the monthly payment.
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Applications are subject to status and lending criteria. Applicants must be UK residents aged 18 or over.