ST EPPING on to the LADDER
It’s tricky right now for first-time buyers, but here’s how you could help your child secure their first home
Buying your first home was once a rite of passage, but for many young adults today, getting a foot on the property ladder can seem all but impossible. According to the Government’s most recent figures, only 41% of 25-34-year-olds own their own home, and even adults in their mid-30s to mid-40s are three times more likely to rent than 20 years ago. Those who are able to buy often rely on financial contributions from relatives. The ‘Bank of Mum and Dad’ lends an average of £20,000 to support children purchasing their first property, and nearly a quarter of house sales in 2020 involved a helping hand from parents and grandparents.
A CHANGING HOUSING MARKET
Average property prices have risen twice as fast as wages in the UK over the past four decades, and buying a home costs millennials a whopping 14 times more than it did the ‘baby boomer’ generation. Someone in full-time work today would have to spend, on average, nearly eight times their annual income to purchase a home. Factor in the double whammy of the 2008 financial crisis and now the Covid-19 pandemic, it’s no surprise that for many young people, affording a similar lifestyle to that of their parents feels out of reach.
THE ALL-IMPORTANT DEPOSIT
According to one study, first-time buyers in 2019 typically needed a deposit of more than £46,000; in London, it was over £100,000. With the average UK salary a little over £30,000, that’s a tall order, even for the most sensible of savers.
Many parents choose to gift or loan a lump sum to help with their child’s home deposit, using their savings or releasing equity from their own property. The role of parents and grandparents in helping to come up with the all-important deposit is now more vital than ever; almost a quarter of prospective borrowers say they’re more reliant on financial help from their family as a result of the pandemic.
A LIVING INHERITANCE
One option for parents and grandparents keen to help their family with a deposit is a lifetime mortgage. If you’re a homeowner aged 55 or over, a Legal & General Lifetime Mortgage, which is part of its later life mortgage range, allows you to access tax-free cash tied up in your home as a loan secured against it. That means you can provide a ‘living inheritance’ to your loved ones to help them financially now rather than later. You can use Legal & General’s online calculators or speak to one of its specialist advisers to discuss what’s best for you. Bear in mind that if you gift money, the recipient may have to pay inheritance tax in the future (find out more at gov.uk/inheritance-tax).
A GUARANTOR MORTGAGE
If your child already has their deposit, another way to support them is to be the guarantor of their mortgage. Your child is the sole legal owner of their property but you’re the financial safety net if they don’t make the repayments, and your home is usually collateral. It’s important to understand the risks of being a guarantor, so that you can make an informed decision that works for you and your family.