With the average age of first time buyers now 33, over £6 billion annually is contributed by parents (and grandparents), either as a loan or gift, to help them get onto the housing ladder, with an average £24,000 deposit.
Caught up in the emotion of the decision, it is easy for everyone to forget that such a substantial sum is also a business transaction. Parents have a duty (to themselves and their children) to ensure that the investment is good value for money, and that it doesn’t over-stretch their own finances, or compromise help for, and relationships with, other children.
This means detaching yourself from that emotion and participating in the decision-making from the outset, rather than allowing your offspring to rush a property purchase without having a full appreciation of mortgage availability – how much and on what terms – as well as initial expenditure on essentials like furniture.
You may be accused of interfering, but you’re not; it’s your money and you want the best for your children.
First purchases are unlikely to become lifetime homes – they are usually an initial step – but clarity is essential: is it for a single person or a couple planning a future together, with or without children, married or not? Do they have/want a pet; a cat or dog will need access to safe outside space.
Guide your children in their purchase by helping them to search property sales particulars online, encourage them to be flexible and look beyond their comfort zone. Help them to balance the ideal against the practical in terms of both the amount of accommodation and the location, for example, travel costs could be an issue for access to work, essential facilities, and even schools. Help them to draw up a shortlist; it doesn’t mean you attending each viewing until the final selection of two or three.
Purchases have to be affordable, both in terms of running costs and mortgage repayments, leaving something in the salary kitty for emergencies and having a bit of fun, but potentially sacrificing holidays. So, encourage your children to be honest about their ambitions and financial situation, developing a two or three year budget – and sticking to it.
Sadly, family relationships can break down, so all parties may also wish to consider a formal written agreement setting out arrangements for dividing assets, including the parents’ share and any terms for repaying the loan/gift should the need arise. And never forget insurance; accidents happen, people can be made redundant through no fault of their own, potentially leaving them in high levels of debt.
Helping young people to buy their first home should be a happy experience, but parents should give consideration to how much they may be able to contribute. It’ll hopefully be worth all the effort and stress in the end, so when they move into their first home, give them a small memento to treasure, reminding them of your generosity.
Our experts at Premier Equity Release are available to provide objective guidance, in confidence, assessing your own financial situation and standard of living into the longer term, whilst assisting with identifying the best mortgage options.