How to help your children get onto the property ladder

According to Halifax, the national average age of a first time buyer is now 32^1. Parents are now far more likely to have older children who have perhaps moved out to go to university, but have since moved back home again and are feeling stuck trying to get their foot on the property ladder. Known as ‘boomerang kids’, this situation may well sound familiar to you.

What can parents do to help their kids onto the property ladder?

If you listen to the media headlines, becoming a first time buyer and owning a home will seem like an impossible task. The good news is, most of these figures are ‘averages’, which means they can exaggerate the realistic amount of money your child will actually need.

Work out their monthly spending and where they could be saving money

There’s no need to be harsh on them - it’s important to remember they are adults now, after all. That means it’s okay for them to go out and enjoy themselves a few times a week. However, do question what they could be doing differently to save money. Sit down with them and offer your help by looking at their budget to ensure they are actively saving money to buy a house. Ask questions like:

• Are they using a gym membership often enough to get good value?
• Would it help to set a limit on weekly spending for them to try to keep to?
• Are you both doubling up on a subscription - such as for streaming services like Netflix, or Amazon Prime?
• Can they car share to save on commuting costs?
• Can they save money on their current household bills?

Approached in the right way, these questions can help them save money towards a deposit, and maybe even help you make cuts to your own budgets too.

How much does housing cost locally

It’s important to remember that their first home may not be their dream home. Most people start off buying what they can comfortably afford at the time, and then move home a couple of times before settling down and planting their roots in their forever home.

Considering this, can you find them somewhere cheaper that’s still nearby, but perhaps just a short drive away from where they ideally want to end up? In some areas, the same property just a few miles away can be considerably cheaper, so don’t totally discount it without checking first. It doesn’t mean the area isn’t nice, it’s just not as expensive as where they live with you right now.

For example, a two bedroom end of terrace house can cost £162,000, but an alternative could be a two bedroom terraced house costing £110,000 instead. And believe it or not, these properties can be less than five miles apart. 

What’s the best way to help first time buyers onto the ladder?

According to Legal and General, on average, ‘the Bank of Mum and Dad’ are gifting up to £18,000 to help their kids get on the ladder. That could cover some of the deposit or the fees associated with buying a home. However, very few parents take the time to work out the best way to:

a) Gift money for a house deposit
or
b) Work out if they actually need to give them the money in the first place

Once you’ve established this, the whole situation should become much clearer.

Guarantor mortgages

There are guarantor mortgages available today which mean you can be a ‘guarantor’ for the deposit. In some cases you can put your deposit money into an account which you can get back after a few years, and it can even earn interest!

Don’t forget, if you do decide to gift money, it’s important to protect it, just in case a partner moves in or there is a falling out and you need your cash back.

Lifetime ISA

You may also have heard of Lifetime ISAs. Here's how they work:

The government will boost your savings by 25%
You can save as often as you like
The maximum annual bonus you can earn is £1,000 (assuming you save £4,000)

Once your kids decide to purchase their first home, they can then use the Lifetime ISA to pay for their deposit, making it that bit quicker to save up and overcome that seemingly big hurdle.

Can they buy with a friend or family member?

If you have two kids living locally, or they have friends in a similar situation, have they considered buying their first home with a friend or sibling by pooling their savings? This is how many got on the ladder in the 1990s, and you’ll find it’s still a popular option for many prospective first time buyers. Working together, they could potentially afford to buy a two-bed property and rent a room, earning up to £7,500 tax-free every year. They could then perhaps use this income to pay you back any money you may have lent them.

Helping your children onto the property ladder is easier than you think

The trick is, don’t assume anything. Check out your kid’s finances with them, find out what properties cost in nearby areas or within their commute to work. Then find out how much money they can save for a deposit and how much you need to contribute.

You may also find that arranging a chat with them and a mortgage adviser helps you both get some clarity A mortgage adviser can talk to you both about the best ways to save for a first home, and calculate how much your child might be able to afford before they start looking for a property.

Get in touch today with our team today for further advice about helping your children become homeowners.

^{1The Guardian}