Parents Warned of Dangers of Giving Children Loans

Mon, 16 Feb 2009

The Law Society has warned parents of the dangers of providing financial assistance to their children in a bid to get them onto the property ladder. With some parents either giving their children money or providing them with a loan to use as a deposit on their first home, the president of the Law Society, Paul Marsh, has warned that such a move could be ‘fraught with difficulties’. New figures have shown that almost eight out of ten first time buyers in London are asking their parents for financial help in a bid to get on the property ladder, as banks and building societies have been increasingly reluctant to approve loans following a year in which the average house has experienced a 16.6 per cent slump in value.

The main methods of parental assistance are either through an outright gift, as an interest free loan, or as an investment, though there are tax implications on the first and last of these options. Mr Marsh said, ‘People don't think through the consequences or take appropriate advice. There's a very big difference between giving or lending to your daughter if she is getting married or starting up a home with a partner. But you need to be cautious in both instances.’
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