Turning the dream of home ownership into a reality

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Parents and grandparents can help children buy their own home without having to hand over money.

It’s no surprise so many young people feel their dreams of owning a home are slipping out of reach. A new report by the Resolution Foundation has found that one in three UK millennials will never own a home and half will be renting into their 40s.1

Meanwhile, the latest data shows that house prices have increased by 30% since early 2013, and 54% in London, bringing the average UK house price to £211,792.2

With property prices continuing to soar, many first-time buyers will feel their only option is to turn to the bank of mum and dad – or even granny and grandad – to help them buy their first home. Nowadays, around 60% of under-30s get help from their family to buy a home3, while one in ten grandparents have gifted grandchildren with enough money to secure a mortgage on a property.4

However, those who are in the fortunate position of being able to help their children need to be sure they are not putting their own financial security and retirement comfort at risk.

"It pays to take financial advice, because you need to be absolutely clear in your mind about the risks and impact on your own personal finances," says Paul Johnson, Client Banking Manager at St. James’s Place.

Home economics

If you are able to help a family member get on the housing ladder, what is the best way to go about it? Give or lend? What about tax issues? What if you need your money back?

The simplest option may be to gift money to your children or grandchildren – thereby providing or increasing their deposit. This will reduce their initial mortgage debt and monthly repayments. However, not everyone is able to gift large amounts of money; and even those with the available funds may be reluctant to part with so much cash.

"You would, of course, immediately lose control of the gifted money – and this may adversely impact your own financial plans – so it may be sensible to look at other options," says Johnson.

One such option is the Secured Deposit Account, which is available exclusively through St. James’s Place. This allows individuals to ring-fence their capital in a non-interest-bearing account that is linked to the child’s mortgage. The money, referred to as the ‘secured deposit’, is not gifted to the child, but it acts as extra mortgage security. This helps to reduce the child’s monthly mortgage repayments.

"It can be funded using cash, or even by borrowing against your investments, although you should seek advice to determine which approach is most suitable," says Johnson.

"Typically, the money becomes available again once the child’s earnings have increased and they have renegotiated their mortgage such that the secured deposit is no longer required."

Two is better than one

Of course, not everyone is willing to lock capital away or borrow against their assets, so a further option is to utilise the incomes of higher-earning family members. For instance, a parent can apply for a joint mortgage with their child. This takes both individuals’ incomes into account to determine if the mortgage is affordable. It is then up to the family to work out how repayments are made.

Unfortunately, many joint mortgages give rise to potential tax issues if the parent already owns a property. To overcome this problem, St. James’s Place now offers a mortgage which doesn’t require the parent to be on the title deeds.

"Parents can avoid exposure to Stamp Duty and other implications of purchasing a second property, such as tax on any profit made from a sale. Furthermore, because the property is not included in the parent’s estate, it avoids a potential Inheritance Tax problem," explains Johnson.

Balancing act

Given the challenges faced by younger generations, there’s a growing need for families to have a more joined-up approach to financial planning. The important thing is to find a balance between the demands of family members and longer-term goals, while also being aware of the finer tax issues. You also need to factor in how your children or grandchildren feel about you becoming part of the equation in any house purchase. Preparation is key, and it can really help to work with a financial adviser on finding a solution that suits all family members.

The home on which the mortgage is secured may be repossessed if the mortgage borrowers do not keep up repayments on the mortgage.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

The St. James’s Place Intergenerational Mortgage Range, including the Secured Deposit Account facility, is provided by Metro Bank. Mortgage conditions apply and are subject to status and approval by Metro Bank.

1 Resolution Foundation, Home Improvements, April 2018.

2 Nationwide Building Society, data to Q1 2018.

3 Tesco Bank Home Buyers Survey, September 2017.

4 OneFamily, September 2017.

 

 

 

Welcome to Andrew Whiting Wealth Consultancy LLP, Senior Partner Practice of St. James’s Place Wealth Management  

Partners in Managing your Wealth

The ‘inheritance economy’ is set to boom. Rising house price inflation will raise the total value of inheritances over the next decade. Many are looking for ways to ensure their money passes to loved ones as oppose to the taxman.

Millennials, those 34 years and younger face unique challenges on their path to home ownership. Young buyers often have a hard time saving for a down payment, citing student loan debt as their main financial hurdle. That along with the challenges of tight credit can limit the options and the ability for young people to own their first home.

New research 1. from the Institute for Fiscal Studies shows how an explosion in house prices above income growth during the past two decades has reduced by half the chance of a young adult on a middle income joining the property ladder.

For this generation, many may seek guidance and financial support from family members when it comes to purchasing their first home. Andrew Whiting Wealth Consultancy LLP can talk through the financial options on how families can have a joined-up approach to finding solutions that suit all family members, please contact Brett Linton on 0121 215 5912.

1 Reference: IFS Research: For 25- to 34-year-olds earning between £22,200 and £30,600 per year, home ownership fell to just 27% in 2016 from 65% two decades ago. Data ownership rates 1995-96 & 2015-16

 

Disclaimer :

The opinions expressed are subject to market or economic changes. This material is not a recommendation or intended to be relied upon as a forecast, research or advice.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The Partner Practice represents only St. James Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website at www.sjp.co.uk/products. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.

 

 
 

 



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