The guide from insurer Royal London highlights potential tax risks, for example if the parents are named on the deeds of the property purchased with their child then they will likely be liable for the higher rate of Stamp Duty which applies to second homes.
From April last year second homes became subject to an additional 3% Stamp Duty rate; a £150,000 purchase of a second home incurs a Stamp Duty bill of £5,000, compared to £500 for a first property.
Parents could also find themselves with a capital gains tax bill if the property is sold at a profit at a later date.
Other issues covered by the report include the potential impact of falling house prices, which could eliminate the chances of the parent ever getting their money back, and changes in the relationship status of the child, which could cause further disputes about precisely how much of the house is owned by each party.
A report earlier this year by Legal & General and Cebr suggested the so-called Bank of Mum and Dad will lend more than £6.5bn this year in order to help their children get onto the property ladder, up from £5bn last year, with parents involved in one in four property transactions.
Parental assistance can come in a number of different forms, besides simply a gift of cash to help supplement a deposit. For example, parents can act as guarantors on the mortgage or take out a joint mortgage alongside the child.
They can also raise money through their own home via a second mortgage or equity release, or use their savings as a guarantee.
Helen Morrissey, personal finance specialist at Royal London, said it was crucial that parents realised that lending or gifting money was a major financial commitment and that they needed to understand the possible implications.
She said: “It may seem very formal but all parties should consider taking legal or financial advice and if needs be get something down in writing. Taking this approach can bring much needed clarity to the process and save both parties a lot of grief.”