In the race to getting onto the property ladder, parents are putting their names on mortgage applications with the aim to help their children buy a house.
Unaware parents sometimes do not realise this will increase the Stamp Duty Land Tax (‘stamp duty’) by a whopping 3%, in addition to the normal rate of stamp duty that would be payable.
This extra layer of expense was introduced this April 2016 by the government as a deterrent aimed at penalising mostly buy-to-let landlords and giving first time buyers a better chance of buying a property.
This has proved problematic for anyone buying a second home because an additional residential property now attracts that extra 3% in stamp duty.
In the past, parents would have acted as guarantors and not become part owners of a property however, guarantor mortgages are now rare.
This has led to parents taking out a joint mortgages with their child which now acts as a platform that increases the range of mortgage options available because even with a big deposit saved, first time buyers may not necessarily have the salary to support a large mortgage.
However, parents from a comfortable financial background who simply want to give their children money towards a house will not invoke the extra stamp duty penalty.
On the other hand parents from a less privileged financial position have limited options and now face the additional 3% cost in stamp duty, in the attempt to assist their children get onto the property ladder.