Why are young people finding moving out so difficult?
Well, there are lots of factors as to why your children might be struggling to afford buy a property right now. Perhaps the most noticeable reason is the sharp rise in property expense in recent decades. This being a rise that hasn’t matched up with incomes.
On average, First Time Buyers in the UK are expected to pay £60,000 for a deposit. This was the average cost of buying a home 30 years ago. House prices now are just shy of being 5 times higher than they were back then, at £296,000.
Currently, a UK income is averaging at about £34,000. For newer adults ranging from 22-29 years old, the average salary is £24,600.
Knowing this, it’s potentially less shocking that people are buying their first homes a bit later. Outside of London, the average First Time Buyer is about 34 years old.
We always advise homebuyers to save where they can, as early as they can. But if this isn’t enough, some parental support can help to tick them over a great deal.#
How can you help?
There are lots of ways to support your children in their homebuying journey. Not all of the options mean shelling out a big cash transfer from the 'Bank of Mum and Dad'. But they can still be equally as beneficial.
However, it’s important to assess your own personal situations and capabilities before choosing what’s best for you and your family members.
Gifted Deposits.
One of the more popular ways of helping out are gifted deposits. It’s one of the most straightforward options you have. But potentially the more financially strenuous one, depending on how much money you’re able to or want to part with.
Gifted deposits are given with the motivation of love and without expectation of repayment. Simply put, it’s a financial gift.
As gifted deposits can be large sums of money, there are processes to go through before the gift can be given. This is to prove that there’s no criminal activity at play (like money laundering) and that you can actually afford to support the giftee.
You will first need to fill out a gifted deposit letter stating the following:
- Your name as the giftee
- The amount being gifted
- That you don’t expect it to be paid back to you
- That you have no commercial interest
- That you as the giftee don’t want a stake in the property bought
- That you are financially solid
Once this is dated and signed by yourself and a witness, it’ll need to go to a conveyancing solicitor as a legal document.
It’s important to be aware that if you pass away within 7 years of gifting this deposit, the giftee may have to pay inheritance tax. This is if the property they bought with the deposit is worth £325,000 or more.
Joint mortgage
Joint mortgages are a great option. They allow you to help your children without sending a large sum of money, unlike a gifted deposit.
Parents and their children alike can put money towards a deposit together. Everyone joined on this mortgage will have a stake in the home.
Keep in mind that this doesn't necessarily mean an equal share. That can be decided between you.
Joint mortgages are good as they allow for more borrowing power. This means that the property can be of a higher standard than what your child might have been able to get without your support.
Costs outside of the deposit can also be split if you choose. This includes Stamp Duty, legal fees, and house bills. Again, this is something you’d have to discuss between yourselves.
As one of the mortgage applicants, there are things to consider before applying for a joint mortgage. This is especially true if you already own a home.
If you already have ownership of a property, it's important to remember that there will be no First Time Buyer Stamp Duty discount. You will also have to pay more on your own Stamp Duty as this property will be considered a second home.
Springboard mortgage
If you choose to use a family springboard mortgage, you will not be asked to transfer any money into the property. Instead of a deposit, you only really need your credibility.
Rather than paying into a deposit, mortgage lenders will accept your savings or property equity as a safety net. This doesn’t mean you’re paying anything with your savings; you’ll simply lock some of it away for a period of time. Different lenders offer different plans ranging from 3 to 5 years. A perk to this is that, after that time, those savings will also be returned with interest.
However, this does mean that if your child doesn't meet mortgage payments, your savings or equity will be offered up as a supplement. If you put forward property equity, this could lead to repossession.
So, before going ahead with the springboard mortgage, make sure your child is able to comfortably meet repayments.
The springboard mortgage is an effective way to help if your child doesn’t have enough for a deposit and if you’re not in a position to help with one either.
If you or your family need a better understanding of mortgage potential before taking these steps, you can get free advice from Mortgage Advice Bureau via reallymoving.
We also recommend that you check out our podcast episode, 'Let's Be Real About the Bank of Mum and Dad', if you want to hear more about how to support your family get onto the property ladder!