Mark Morton is back to answer your legal questions. This time he’s helping a prospective buy-to-let investor, offering tips to the parents of a first-time buyer and discussing pensions in a divorce
The Question
I want to help my daughter buy her first home – how can I do that?
Mark’s Answer
There are quite a number of ways that you can help your daughter purchase her first home but before you decide to provide assistance you should seek independent financial advice to help you work out how much assistance you can comfortably afford to give.
In terms of the ways you can help you could make a financial gift, a loan, acting as a guarantor on a mortgage or getting a joint mortgage.
Over the last few years, we have certainly seen an increase in the numbers of parents who are making a gift to their children to help increase their deposit.
Most lenders will accept a gifted deposit but will ask for confirmation in writing that the deposit is a genuine gift and not a loan and that you will not hold any interest in the property.
When making a gift it is important to consider the inheritance tax consequences and you should take specialist advice. An inheritance tax bill could be due later down the line.
Another option is to loan the money to your daughter and have a loan agreement drawn up setting out monthly payments and interest to be paid. However, you would have to declare the loan to any mortgage lender, and this could affect mortgage affordability calculations.
Alternatively, you could choose to act as a guarantor on your daughter’s mortgage. By doing this you are agreeing to cover the mortgage payments if your daughter is unable to make the payments.
Finally, you could look at taking a joint mortgage which means you are equally liable for the loan.
This could mean the amount you can borrow would be greater due to your combined incomes.
However, this can have stamp duty land tax implications if you already own a property as your daughter’s property would count as a second home and therefore liable for an additional 3% stamp duty land tax.
If the property is classed as your second home, then there may be capital gains tax implications when the property is sold in the future.
The Question
What should I consider if I am thinking about purchasing a property for a buy-to-let?
Mark’s Answer
At the moment the most important area to consider is how is the purchase to be financed. With the rises in interest rates over the last year budgeting for buy-to-let mortgage payments and all the other costs that will be associated with the property such as insurance, repairs and letting agent’s fees is vital.
You cannot guarantee the property will always be occupied so you will need to make sure these costs can be covered when the property is empty.
You need to be looking to invest in an area where tenant demand outstrips supply so periods where the property will be empty will be kept to a minimum and you need to consider what type of tenant you are looking for. Is it to be families, young professionals, or university students. This will clearly have a bearing on what area would be best for investment.
Consider whether the property is going to be freehold or leasehold. With a leasehold property there may well be restrictions contained in the lease regarding sub-letting and you may require the consent of the landlord each time the property is to be let.
A landlord will usually charge a fee for granting consent and these are additional costs that need to be considered.
Finally, the other area to make sure you cover is to keep up to date with the relevant legislation. The property must have an Energy Performance Certificate (EPC), Gas Safety Certificate and electrical checks. The tenant’s deposit must be kept in a government-approved scheme and the tenant must have a legal right to rent the property.
Due to the ever-changing legislation most landlords will look to employ a letting agent to manage the property on their behalf and this clearly entails extra costs that need to be factored in.
The Question
What happens to my pension during a divorce?
Mark’s Answer
The existence of a pension can be one of the more significant assets in a financial settlement should a marriage or civil partnership break down.
Although it is not accessible in the same way as a cash asset, a pension has a value which can be dealt with in a number of ways.
For example, a party’s pension may be divided, with each party retaining an individual share of the pension pot in question, to which they would then have sole access subject to the terms of the retirement scheme in question.
Alternatively, once a value has been ascribed to the pension and if there is sufficient value in the totality of the other matrimonial assets, then a party’s entitlement to part of the value of the pension can be ‘offset’ against other assets, so one party may agree not to touch the other party’s pension asset provided they have a larger share of the other assets.
The family legal team at Parfitt Cresswell can help you decide what your entitlement should be and how, in the circumstances of your particular case, the pensions should be dealt with.
As expert actuarial advice may also be needed to ascertain the true value of the pensions and the effect of dividing them in different ways, we will help you obtain such a report and will ultimately ensure that the correct court order is obtained which will make any pension sharing order secure and finally binding.
Meet our expert…
Mark Morton joined Parfitt Cresswell in February 2020. A Licensed Conveyancer, who has been qualified since 2006, Mark’s expertise lies in all aspects of residential freehold and leasehold sales, purchases, remortgages and transfers of equity.
With more than a decade of working in prime central London Mark has experience working with all types of property. He prides himself on his common-sense approach and attention to detail. You can read the previous Q&A by Mark here.
If you have a question for Mark please email kate.saines@emap.com
