How to help your children get onto the property ladder
According to our November 2018 National Mortgage Index, the average first time buyer age is now 31. And this is reflected in their living situations: parents are now far more likely to have older children who have perhaps moved out to go to university, but have since moved back home again and are feeling stuck trying to get their foot on the property ladder. Known as ‘boomerang kids’, this situation may well sound familiar to you.
If you’ve got boomerang kids living at home, you’re probably racking your brains, thinking ‘how can I help my child to move out and get a place of their own?’ Well don’t worry, you aren’t alone and there’s plenty of help out there for you and your child.
What can parents do to help their kids onto the property ladder?
If you listen to the media headlines, becoming a first time buyer and owning a home will seem like an impossible task. The good news is, most of these figures are ‘averages’, which means they can exaggerate the realistic amount of money your child will actually need.
Work out their monthly spending and where they could be saving money
There’s no need to be harsh on them - it’s important to remember that they are adults now, after all. That means it’s okay for them to go out and enjoy themselves a few times a week. However, do question what they could be doing differently to save money. Sit down with them and offer your help by looking at their budget to ensure they are actively saving money to buy a house, asking questions like:
- Are they using a gym membership often enough to get good value?
- Would it help to set a limit on weekly spending for them to try to keep to?
- Are you both doubling up on a subscription - such as for streaming services like Netflix, or Amazon Prime?
- Can they car share to save on commuting costs?
- Can they save money on their current household bills?
Approached in the right way, these questions can help them save money towards a deposit, and maybe even help you make cuts to your own budgets too. Make sure you ask yourself questions too: are you encouraging them to spend more than they need to without realising it? You may be surprised by what you find!
How much does housing cost locally
You may hear that the ‘average’ cost of a home is hundreds of thousands of pounds, or see that other people your child’s age can’t afford to buy in your area. But how long did it take you to get the home you wanted in the location you have now? It’s important to remember that their first home may not be their dream home. Most people start off buying what they can comfortably afford at the time, and then move home a couple of times before settling down and planting their roots in their forever home.
Considering this, can you find them somewhere cheaper that’s still nearby, but perhaps just a short drive away from where they ideally want to end up? In some areas, the same property just a few miles away can be considerably cheaper, so don’t totally discount it without checking first. It doesn’t mean the area isn’t nice, it’s just not as expensive as where they live with you right now.
For example, a two bedroom end of terrace house can cost £162,000, but an alternative could be a two bedroom terraced house costing £110,000 instead. And believe it or not, these properties can be less than five miles apart!
It just goes to show that if you help your kids look a little further afield, they could well find their future home for a lot less than if they only considered their ideal location.
What’s the best way to help first time buyers onto the ladder?
According to Legal and General, on average, ‘the Bank of Mum and Dad’ are gifting up to £18,000 to help their kids get on the ladder. That could cover some of the deposit, the stamp duty, or the fees associated with buying a home. However, very few parents take the time to work out the best way to:
a) Gift money for a house deposit
b) Work out if they actually need to give them the money in the first place
Once you’ve established this, the whole situation should become much clearer.
There are guarantor mortgages available today which mean you can be a ‘guarantor’ for the deposit. In some cases you can put your deposit money into an account which you can get back after a few years, and it can even earn interest!
Don’t forget, if you do decide to gift money, it’s important to protect it, just in case a partner moves in or there is a falling out and you need your cash back.
What government help is available for first time buyers?
There are lots of schemes to help people onto the ladder. In particular, there are two government-backed help to buy schemes to help first time buyers boost their deposit savings by up to 25%.
Help to Buy ISA
If your kids don’t need to buy right now but want to start saving to buy in the near future, then the Help to Buy ISA could be for them.
A Help to Buy ISA essentially acts as a savings account; with a few added benefits:
- The government will boost your savings by 25%
- If you save £200 a month, the government will top it up by £50 each month
- The maximum bonus you can earn is £3,000 (assuming you save £12,000)
However, the bonus is only paid on the day you complete on the property purchase, not at exchange when the deposit is normally transferred so you will need to ensure your legal company is aware that part of your deposit will be paid on completion via the government scheme.
You may also have heard of Lifetime ISAs. These are similar to Help to Buy ISAs:
The government will boost your savings by 25%
You can save as often as you like
The maximum annual bonus you can earn is £1,000 (assuming you save £4,000)
Once your kids do decide to purchase their first home, they can then use the Lifetime ISA to pay for their deposit, making it that bit quicker to save up and overcome that seemingly big hurdle. And once the deposit is saved, there are Shared Ownership and Help to Buy schemes. Both of these can get your kids onto the ladder with 5% deposits.
Can they buy with a friend or family member?
If you have two kids living locally, or they have friends in a similar situation, have they considered buying their first home with a friend or sibling by pooling their savings? This is how many got on the ladder in the 1990s, and you’ll find it’s still a popular option for many prospective first time buyers. Working together, they could potentially afford to buy a two-bed property and rent a room, earning up to £7,500 tax-free every year. They could then perhaps use this income to pay you back any money you may have lent them.
Helping your children onto the property ladder is easier than you think
The trick is, don’t assume anything. Check out your kid’s finances with them, find out what properties cost in nearby areas or within their commute to work. Then find out how much money they can save for a deposit and how much you need to contribute. You may also find that arranging a chat with them and a mortgage adviser helps you both get some more perspective. A mortgage adviser can talk to you both about the best ways to save for a first home, and calculate how much your child might be able to afford before they even start looking for a property.
If you have any questions about the best way to help your children get onto the property ladder, get in touch today and our team will be able to provide you with advice about how to find the right mortgage for them and practical next steps to help your children become homeowners.
Because we play by the book we want to tell you that…
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.