Forum Brief: Property ladder
Parents of would-be home owners expect they will have to contribute an average £17,000 of their own money so their adult children can gain a foothold on the increasingly expensive housing ladder.
A survey for the Joseph Rowntree Foundation of home-owning parents of 18 to 29-year-olds reveals that more than half who expect their children to become homebuyers think they won’t succeed without a substantial financial contribution.
Forum Response: Joseph Rowntree Foundation
Richard Best, director of the Joseph Rowntree Foundation, said: "Parents who are owner-occupiers are coming to terms with the fact that high house prices are not necessarily good news after all. The value of their own property may have risen, but their children will find it increasingly difficult to follow them up the home ownership ladder unless they are prepared to help them with a substantial gift or loan.
"Our own research has shown just how unaffordable starter homes have become across the south of England in relation to local pay for young adults. The truth, for better or worse, is that homes will only become more affordable when we have increased the level of house building in areas where shortages are acute – a point underlined by Kate Barker’s recent review of housing supply for HM Treasury."
Forum Response: Nationwide
Jeremy del Strother, Nationwide divisional director, said: "Affordability for first time buyers is becoming a bigger issue because salary increases are not keeping pace with rising property prices.
"However, people are finding new ways of getting on the property ladder by seeking to boost their income, by making some significant compromises on location or by deciding to club together with friends and family.
"Some borrowers will be tempted to borrow their deposit and take other steps in order to get on to the property ladder. However, young borrowers should not over-stretch themselves in the rush to buy.
"There is no quick-fix solution to buying your first home, but ensuring that you have cleared as much personal debt as possible before applying for a mortgage will ensure that you are in a much healthier position financially.
"Whilst buying with friends and sharing monthly mortgage payments is an option for some, we would suggest that those wishing to do so seek proper legal advice before going ahead.
"Whatever the case, make sure that you shop around for long term good value and pick a lender that does not charge high initial fees such as a Mortgage Indemnity Guarantee."
Forum Response: Barclays Bank
Andy Gray, head of mortgages for Woolwich, said: "As a new study conducted by MORI for the Joseph Rowntree Foundation suggests that parents are expecting to spend an average of £17,000 to help their grown-up children get a foothold on the property ladder, Woolwich urges parents to consider different ways to help their children rather than handing over hefty deposits, and our own analysis shows mums and dads are already thinking of other ways to help out.
"Our own analysis shows that we already have two fifths of parents offsetting around £25,000 of their savings to their children's mortgage in order to reduce the monthly mortgage payment.
"If children can save their five per cent deposit, this is a great way for mums and dads to help. The advantage of Offset Together packages such as ours is that it allows parents help their children out without having to hand over hefty deposits.
"The Woolwich Offset Together market is a way for families (or another party such as a partner) help to reduce their children's monthly mortgage payments or cut years off the loan, simply by offsetting their savings against the borrowing.
"Parents' or grandparents' money is kept completely separate in an account that they control enabling them to add or withdraw money at any time. The savings account is linked to the mortgage-holder where it is offset against the loan saving interest on the mortgage.
"The mortgage holder saves money by only paying interest on the difference between the amount borrowed and the amount in the linked savings account. For example, someone with a £70,000 mortgage whose parents or grandparents offset £10,000 of savings will only pay mortgage interest on £60,000 all the time that the savings are in the account.
"Why would parents help? The offsetting doesn't have to be a long term arrangement it can be changed at any time - parents in receipt of a windfall or pay bonus could offset it against the mortgage until they decided what to do with it.
"Parents can help their children without having to give their money to them. Parents can ease the financial strain that many young people go through when setting up their first home, allowing them to enjoy their home. Parents can help when one of the mortgage-holders is off work for a while, for example on maternity leave, or other life events such as children saving for their wedding."
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