The cost of buying a house has risen sharply in recent years because property prices have gone up so much.

That has made it really difficult for young people to get on the property ladder.

With interest rates going up for the first time in a decade, that cost is set to go up even more.

Little wonder then that many young people are turning to their parents for help – welcome to the bank of mum and dad. In London eight out of 10 first-time buyers are getting help from parents and it’s widespread elsewhere too.

As a parent, it’s very tempting to try to help your children get a property in any way that you can, for instance by giving them or loaning them some money for a deposit.

Many people are using their savings, taking out a secured loan themselves (using their own home as security) or releasing some equity from their own property, to help their children find a decent deposit.

But there can be hidden dangers, aside from the obvious one of potentially leaving yourself short in the future if your circumstances change.

To begin with if you give your children a cash gift to help them out and then die within seven years, they may be liable to inheritance tax. Of course this only applies where an individual’s estate is worth more than £325,000.

If you end up with your name on the deeds of the property then beware as this might be classed as a second home and you be liable for a higher rate of stamp duty. Or you’ll face a capital gains tax bill if the property is sold for a profit later.

If you loan your child money and they pay you back with interest, you could pay income tax on that interest. And then there can be complications if you have loaned your son or daughter money to buy a property with a partner and they subsequently split up. And, as I mentioned earlier, what happens if you loan your child money and your own circumstances change and you need the money back to live on – what do you do then?

Many people are setting out a legal agreement before they gift or loan a son or daughter money and this makes sense. It may seem like a very formal thing to do with family that you love, but it can clarify things and avoid any confusion, upset or heartache later.

Of course there are other ways to help your children too, without loaning them money. You can act as a guarantor for their mortgage, enabling them to borrow more but making you liable for repayments if your offspring default. Or you can take out a joint mortgage on a property, again making you liable for payments your child couldn’t afford.

As you can see, there are lots of options and it is worth talking through all of them before deciding what to do.

If you want to discuss helping your child get on the property ladder, please get in touch.