Gran gesture helps young people snap up property
GETTING onto the property ladder is harder than ever but first-time buyers are obtaining extra support from a fast-growing and increasingly generous lender, the Bank of Granny & Grandad.
Grandparents are more generous than they have ever been, as a third of buyers aged between 18 and 34 are now buying with their help.
This is a huge leap in a single generation, as just 3 per cent of those over 55 had the same assistance, according to research from online mortgage broker Trussle.com.
While this family assistance is to be applauded, grandparents need to agree a few ground rules to make sure their generosity does not backfire.
HAND UP
Jack Watson, a 25-year-old sales consultant working in Newcastle, would not be in a position to buy a property until his 40s without his grandmother’s help and foresight.
Jack’s grandfather Keith died shortly before Jack was born, but his wife Margaret invested his company payout in stocks and shares and passed a chunk of that to Jack: “I never knew my grandfather, but he is helping me get on in life today.”
Ideally, Jack would like to buy a two-bed terraced home with partner Lou, but the likely £200,000 cost “is so silly I can barely comprehend it”.
While mortgages are now available with a deposit of just 5 per cent, he would rather put down 15 per cent, to secure a lower interest rate.
He is now saving hard to increase his deposit and to cover the cost of furnishing his new home.
Jack is grateful for this intergenerational help, but wished it was not necessary, especially as he earns a decent salary.
“It’s ridiculous that we live in a country where I have to rely on the wealth of others to buy a home,” he said.
MOVING IN
Juvayriyah Ikram, a 24-year old teacher based inwanstead, east London, bought her first home in August this year, backed by her grandfather.
Juvayriyah and her partner had put together a £15,000 deposit but high prices in the capital meant it wasn’t enough to get them the mortgage they needed. In 2016 her grandfather topped it up with £10,000 from his own pocket, which he put in a savings account to generate interest.
In August, they completed on a house costing £290,000. “We only moved in a few weeks ago, and now have a lovely, stable home for our newborn baby,” Juvayriyah says.
She took advice from Trussle to find the right mortgage and opted for a three-year fixed rate from Nationwide, so she is clear how much she has to pay each month.
Juvayriyah said the £10,000 came as a wonderful surprise: “My grandfather has given similar help to my three siblings as well.”
WRONG RATIO
The Bank of Granny & Grandad is in greater demand as house prices spiral faster than incomes.
In 1999, the average house cost £80,443, which was 4.5 times the average annual salary of £17,803 in those days.
Today, prices average £234,853, an incredible 7.9 times today’s average annual salary of £29,558.
Yet mortgage lenders still refuse to offer applicants more than four or five times their household income.
The average grandparental gift is £7,400, which works out as just under a third of the cost of the average 10 per cent deposit, which is £23,485.
The majority who received help said they could not afford a deposit without support from grandparents.
PLAN CAREFULLY
Trussle mortgage expert Dilpreet Bhagrath said saving enough money to buy a property costing nearly eight times your income is a challenge: “This can be even harder for those who are paying rent at the same time, so family support is often essential.” Those who cannot get help from family or friends, should consider other schemes aimed at first-time buyers, such as the Government-backed Help To Buy Equity Loan scheme, or Shared Ownership.
Bhagrath said if you are providing financial support to your grandchild, you must be clear whether the money is an outright gift:
“If it is a loan, contact a solicitor to draw up the necessary paperwork and map out a framework of how and when the money will be repaid.”
Most lenders do not accept loaned deposits and may ask you to sign a gifted deposit letter confirming that the funds are non-repayable, although there are a handful of exceptions to this.
Buyers should also explain the position to their mortgage broker, to help them find the most suitable deal.
“If the deposit is coming from the grandparents’ bank account, they may need to provide bank statements to avoid any last-minute hiccups,” Bhagrath added.
As well as the property deposit, buyers also need to ensure they have enough funds to cover upfront costs when buying a home, such as legal fees, survey and mortgage lender arrangement fees.
Bhagrath said that grandparents must not overstretch themselves: “You must keep some cash in a rainy day savings account, as protection against unexpected bills.when gifting, you also need to consider inheritance tax implications.”
‘Buyers need to ensure they have enough funds to cover upfront costs when buying a home’