What you need to know when helping your child buy their first home

5 minute read

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It comes as no surprise that Nationwide Building Society recently revealed that 88% of first-time buyers are delaying their plans to purchase due to the rising cost of living impacting their ability to save.

With ‘generation rent’ being priced out of the housing market, due to soaring housing costs, many young adults aged 18 - 40 are unable to buy, having to pay a high percentage of income on rent. Preventing any chance they may have of saving for a property. 

So, with younger generations increasingly stuck in a cycle of renting, often having to find house shares to keep themselves afloat, the property prospects for younger people look a little gloomy. 

Whilst there are more schemes designed to help first time buyers take their first step onto the property ladder, an increasing number of parents are now making the decision to support their child by purchasing their first home. 

In 2021, two thirds of parents said they had helped their child to buy a home by contributing towards the deposit, with the average contribution amounting to an eye watering £32,440, and with 24% of parents saying that their children would never have been able to afford to buy a home on their own, the bank of mum and dad is increasingly becoming the only option for many.

So, why are parents across the UK helping their children to buy their first home?

One of the main reasons is that putting money towards the purchase of your child's first home can help reduce mortgage payments and in turn can unlock lower interest rates, making it a lot more affordable month to month for many. Not to mention this can also allow you to buy a better property or even a home in a more desirable postcode.

First-time buyers who receive money or a loan from their parents can buy 2.6 years earlier than those who do not, with this rising to 4.6 years in London according to the Gov website.

If you’re looking to help your kids take that first step onto the property ladder, but still feeling a little unsure - don’t fear - we interviewed some parents who have supported their kids in buying their first home, to get some insight on their journey.

  • 24% of parents believe their children would never have been able to afford to buy a home without their support
  • Generation rent are being priced out of the housing market
  • First-time buyers who receive money or a loan from their parents can buy 2.6 years earlier than those who do no

How to apply for a mortgage? Here’s Sarah’s Story…  

The process of applying for a mortgage is a difficult one if you’ve never done it before and it can be overwhelming for a first-time buyer. 

Usually, there are lots of parties involved, the estate agent, solicitors and mortgage broker - and ultimately, they all have their own interests at heart. That’s why Sarah made the decision to support and advise her child through this process when she reached a point of saving enough money to purchase her own property.

We all know that purchasing your own home can be one of the most stressful times in your adult life, with the risk of so many things going wrong, so having someone to discuss those concerns with who doesn’t have a vested interest can put the whole process into perspective and help explain the steps in a straightforward way.

Who’s involved in the purchase of a property?

Estate agent: A key part of an estate agent’s job is to manage negotiations, acting as a go-between for potential buyers and the owner of a property. Offers should be made to the estate agent who will pass them to the owner and similarly, relay the seller’s response to any offer shared. 

Mortgage Broker: They are known as the intermediary between the bank offering a loan and the person purchasing the property. The mortgage broker will work with both parties to get the individual or individuals approved for the loan. 

Solicitor: A solicitor will handle all the legal aspects of buying or selling a property for you. A good one will keep you updated regularly, and can support you by answering questions about the process of buying your property.

Sarah shares her top tip for helping her daughter get on the property ladder: Send links to useful articles and provide support or knowledge with anything from the vocabulary used through the process to mortgage interest rates, to loan periods and repayment options.

Be sure to do your own research on all aspects of the process to be able to answer all of the issues which can come up when purchasing a property, particularly when it comes to finding the right broker.

Always planned to help your kids buy their first home? Here’s Adam and Jane’s Story…

Adam and Jane had been saving for over 24 years (the entirety of their daughter's life!) to help her purchase her first home, the couple had always secretly planned to help out financially when she was ready to fly the nest. 

And whilst their daughter and her fiancé were already saving to purchase their first home, with the support of the Government ‘Help to Buy’ ISA schemes, it unfortunately turned out that neither were eligible to receive the cash bonus they had hoped would help them buy in 2021.

What is an ISA? An ISA (individual savings account) is a tax-free savings or investment account that allows you to put your ISA allowance (a set amount you can put into ISAs each tax year, without paying tax on any money your ISAs make), to work and maximise the potential returns you make on your money, by shielding it from income tax, tax on dividends and capital gains tax.

So, Adam and Jane surprised the couple over dinner with a lump sum of money which they could put towards their house and wedding in a financial gift form. A monumental moment celebrated with a curry - the kids paid of course! 

Adam and Jane shared their top tip for helping their daughter get on the property ladder: Get to know your mortgage broker and if you’re lucky enough, work with someone who has been recommended to you they will help you understand the costs when buying your first home. 

It’s important that they work with you, so that all parties involved have a clear understanding of affordability. 

They also shared this golden snippet… don’t have kids, they are expensive (only joking)!

A parent along for the purchasing journey… Here’s John’s story

Following the announcement that the flat his daughter and her partner were renting in Central London would be going up for sale, John decided that now was the right moment to help his daughter get one foot on the property ladder.

To support with the purchase of a flat in Central London, John topped up his daughter’s deposit funds via a financial gift, helping her and her partner secure a mortgage. However, before gifting this money, John took time to consider his own financial position, for example the length of his own mortgage, state of his pension and most importantly, whether this gift would lead to him needing to work longer – affecting his life in the long run. 

What is a financial gift? A financial gift, or gifted deposit means that one party has given money to another which will help cover a property deposit. It’s important to know that this money is not classed as a loan nor does the person giving you the money have any stake in the property. The money must be given freely, with no requirements or expectation or repayment at any time in the future. 

Not only did John support financially, but he was involved through the purchase process, researching whether the property his daughter and her partner were considering would be a strong investment for their future, as well attending viewings (to ensure they were considering a two bed, so he had a place to stay when visiting) and getting to know the area and its heritage. 

As the area his daughter and her partner had settled was going through a regeneration John made sure to look into approved projects and open planning applications, helping him and the couple understand how the area that they were purchasing would change over the coming years and the potential impact this would have on the purchase in the long term.

John shares their top tip for helping his daughter get on the property ladder: It’s not just about the money, you should also support your child through the purchase process, being the sounding board for questions and offering advice when needed. Remember, you’ve done this before, but your child hasn’t so this support can be invaluable when it comes to giving your child peace of mind.

And finally, John recommends making sure you only give what you can afford as the property ladder can be unforgiving if you overreach. 

If you’re looking for more information on purchasing your first home, as well as insurance information, head to the article section on our website to find out more. 

 

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