6 Ways to Help Your Child onto the Property Ladder

With property prices in many parts of the UK continuing to rise, many young people could be forgiven for assuming that they will never become a homeowner in their own right. However, this is not necessarily the case.

The housing market is, like any other market, primarily driven by the level of demand from home buyers and the level of supply of homes in the market place. Where demand outstrips supply prices will remain buoyant and probably rise. Demand, of course, is not just a desire to buy. It must be real demand, meaning that the buyers must have access to funds (either by way of cash or mortgage - or both).

In simple terms there are six ways in which you might be able to help your son or daughter to get on the housing ladder. Some are short term, some longer term, although the good news is that some might cost you no cash at all! They are;

1:  Start a savings and/or investment account whilst your child is young, perhaps in your child’s name, and ideally a tax efficient account such as an ISA. You are currently able to gift small cash amounts every year without tax being payable and over time this can add up to a significant deposit. There are specific ISAs now available to homebuyers that you might want to investigate when making a decision about setting up a savings account. Clearly, the sooner you can start this process the greater the beneficial effect of compound interest on the capital sum. It’s probably never too soon to begin this process.

• Help to Buy ISA Scheme

2: Use your current savings as a deposit to buy a second home or Buy to Let whilst your child is young in order to provide a nest egg later. Of course, you will need specific tax advice in this respect and the particular way in which the property is owned needs to be explored. In addition, the buy to let market has recently suffered several disincentivizing blows from the UK tax man and if you are a high rate taxpayer you might find that investing in the buy to let market is a fairly unattractive option right now.

• Stamp Duty Changes for Buy to Let Landlords

However, if you want to hedge savings against a rising property market it’s worth considering an investment in the buy to let sector. If house prices continue to rise at least your investment is hedged against this inflationary pressure. 

3: Become a Guarantor for your child when they take a mortgage. Providing the mortgage lender with the added comfort of a guarantee may help your child to get on the housing ladder without any call on your own savings or the release of equity in your own home. However, don’t forget that if your child is unable to pay their mortgage or meet the terms of the loan for any reason you become responsible! Your own home may be at risk if you or your child fail to keep to the terms of the loan agreement.

4: Have your child jointly buy the home with a third party. You might consider either jointly buying a property with your child and/or suggesting they do so with another. Of course, all parties need to have their ownership and obligations clearly defined and it is probably only sensible to do this with someone you trust, but the advantages are significant. You may be able to use equity from an existing property to underwrite a larger loan and the income multiplier on two incomes will increase the amount you can borrow overall.

5: Part Rent and Part Buy. Shared ownership is becoming a very popular way to get a foothold on the housing market. Many housing associations and housebuilders now offer options that mean new buyers can buy a part of the home and rent the remainder. This makes ownership more affordable and as and when you sell you should (over time) have generated a deposit for your next home. This option also has the added benefit of keeping you out of the equation financially and means your child is largely independent, relying only upon a shared ownership scheme with a third party.

• Shared Ownership (New and Second Hand Homes)

6: Release cash from your own home, with a traditional mortgage if you are young enough, or using Equity Release if you don’t want to make monthly repayments. This will provide a gift/deposit for your child’s new home. Remember that there are tax implications for gifts over a certain amount and the source and nature of all monies used as a deposit must be declared to the mortgage company at the time of application.

Some of the options listed above require significant cash participation. Some do not. The advantage to the cash related options is that your own home can be excluded from the equation. Furthermore, depending on how you set up any savings or investment account, the savings can also be a nest egg for unforeseen family emergencies or for other expenses such as a college fund.

For more details on how best you might make provision for your child’s entry into the housing market, either now or in the future, contact Mortgage Required on 01628 507477.