How to help your children buy a property
The average age of a First-Time buyer has crept up again and now sits at 34 years old. In 2007 it was 28 and before then, in 1997 it was 26.
Given this fact, it is unsurprising why so many First-Time buyers in 2022 rely on funds from family and friends to help them on to the housing ladder.
Why is this happening?
So, what is causing the average age of First-Time buyers to increase? Surprisingly, it isn’t just increasing house prices. Instead, it is a culmination of various factors which have led to this outcome.
Cost-of-living increase
Since the MMR (Mortgage Marketplace Review) in 2013, lenders must comply to responsible lending guidelines. You can read these guidelines yourself on the FCA website, although we would only recommend doing so if you’re currently looking for something to alleviate your insomnia.
These guidelines were put in place to prevent an economic down-turn such as the likes we saw in 2007 when the property bubble abruptly burst.
Since we are seeing dramatic increases to the average UK cost-of-living, lenders will need to show that they are acting responsibly by re-assessing the way that they calculate this into borrower’s mortgage applications.
Of course, there is also the direct impact that increased costs will have on UK saver’s ability to save money, alongside inflation damaging the value of the money that they have already saved.
House Prices increasing faster than wages
We all have that one relative that boasts about buying a house outright in their twenties. This is as frustrating as it is useless to a first-time buyer in 2022.
In June 1970 the average price for a property in the UK was £3,980 whereas the average UK wage was £18.92 per week or £983.84 per year.
Using these figures, in the 1970s we can calculate that the price of a house cost just over 4 years salary. Fast forward to 2021 when the average wage in the UK was £38,131 (according to figures from the ONS) for a full-time worker, and then in January 2022 the average price for a property in the UK was £273,762. This means that a buying a property at the end of 2021 would cost just over 7.5 years salary.
Scarcity drives prices up
Despite the lack of supply in the property market, there has been no drop in demand. In 2021 First-Time buyers accounted for a total of 48% of all purchases made in the year which represented a record 35% rise.
There are many reasons why prices continue to rise, but the high demand which simply isn’t being met by the supply of housing stock will always kick off fierce competition and send prices upwards.
Until either the demand drops or the supply increases, we predict that prices will continue to go in the direction that they are.
What’s the solution?
Having established that affordability checks are likely to get tighter and prices aren’t coming down anytime soon, what is the solution?
Gifting deposits
Let’s say your child has £50,000 saved for their deposit and can acquire a mortgage loan of £150,000. They may struggle to find a suitable property for £200,000 and as they have already maxed out their mortgage options they may feel as though they have hit a brick wall.
As a parent/ family member, you could gift you child the remainder which will increase their purchasing power whilst also helping to reduce their loan to value (LTV) which will likely mean they get a preferable interest rate.
This is all well and good, but what if you don’t have thousands of pounds to offer them? Perhaps you have the money but can’t afford to part with it?
Thankfully, there are more options.
Further advances/ capital raising
If you are happy to make a gift to your child, but don’t have the money to spare, your own property could hold the key.
Depending on your own situation, you may be able to raise additional funds from your own property by doing a further advance with your current lender. This essentially means that you will be increasing your own mortgage, to free up some capital to make the gift.
Depending on your age, releasing equity could also be an option.
Specialist mortgage products
If you are intent on helping your child purchase a property but are unable or unwilling to part with thousand of pounds to do so, you do have other options.
Joint Borrower, Sole Proprietor
Joint borrower, sole proprietor mortgages enable you to join your child on their mortgage, without sacrificing their first-time buyer status and therefor there is no stamp duty to be concerned about.
These types of products give you the opportunity to increase their affordability which could help increase their mortgage loan amount. So, using our previous example, they still have £50,000 deposit but now they can borrow £200,000 thanks to your earnings being considered in the lender’s calculations.
You can read more about Joint borrower, Sole Proprietor mortgages here.
Springboard mortgages
Barclays offer a unique product called a Family springboard mortgage. This is a product which enables you to gift a deposit but get it back after an agreed period.
Essentially your gift will be held in an account by the lender and act as the deposit. Although, the mortgage offered can be up to 100% so the deposit won’t be used for the purchase and instead be held as security. This will remain to be the case so long as the mortgage repayments are kept up and the family member you’re helping doesn’t default. The bank even promises interest on the security when you finally withdraw it.
So, there you have it!
We hope that you found this useful. Although, we understand that you now probably have more questions than you started with. So why not give us a call?
The options we have discussed above may not be right for you. There are thousands of mortgage products on the market place, and speaking to an expert mortgage advisor will help you become aware of which ones suit your circumstances.
Prospect Tree Mortgages are independent and whole of market experts, this means we can research the entire UK market for you and find you the mortgage product which suits you best.
Gifting deposits or joining a family member on their application is a big decision, so we recommend seeking financial advice before proceeding.
Prospect Tree Mortgages are regulated by the FCA and are therefore legally obliged to give you the best advice for your circumstances.
Give us a call today to discuss your options.
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0800 8620 840