Opinion: Important advice for the Bank of Mum and Dad – do your research and think about what your child wants, too

7 June 2017, City A.M.

By Melissa York, City A.M.,

Rising house prices, together with stagnated salary inflation, have meant that more first time buyers are struggling to afford to get onto the property ladder, particularly in London where Hometrack data shows current property values are 85% higher than they were eight years ago. As a result, the “Bank of Mum & Dad” has become much more prevalent in helping their offspring onto the ladder, with the average hand out per child in London amounting to £24,800. So far this year, 20% of our clients have been buying for their children and we predict that this will increase by 10-15% over the next two years.

For those who plan on helping children financially, the first thing to work out is affordability. Some parents will have savings but others will need to borrow to help their children out. There are several ways to do this, for example, by remortgaging, or apply for a loan. Whatever option you decide, it’s a good idea to seek independent financial advice first.

For parents who want their children to repay the loan at some point in the future, drawing up a loan document is straightforward and it should set out the repayment terms, and any interest payable. It needs to be signed by both parties.

A common preference for parents buying for children is two-bedroom homes, and within close proximity to good transport links and other amenities. These offer a good future investment due to their broad appeal either for buy to let, first time buyer or professional couples. Areas such as Ladywell are proving particularly popular for first time buyers who are looking for value for money and within easy reach of Central London; we recently bought a two-bedroom property there for a client for £370,000. While there is a demand on new builds from first time buyers, we are seeing more of an interest in second hand properties which are often less expensive due to the premiums attached to new builds.

With so many ways to help your child get onto the property ladder, it’s important to put the time in to properly research the various options that are available. I would strongly advise carefully reviewing all potential risks and benefits and speak to your son or daughter about the option that is best suited to their needs as well as your own.
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