It’s a Catch-22 for young people that renting generally costs significantly more than paying a mortgage on an equivalent property, but the high initial deposit and mortgage qualification criteria can be an impassable barrier to entering the housing market.
For parents, the situation is very different. Many Generation Xers have children who are reaching – or have already reached – adulthood and are struggling to buy their first home, while their parents own a property that cost far less as a proportion of their income.
Whatever your circumstances, there are ways to help your children on to the housing ladder. Of course all the usual rules apply when it comes to finding somewhere affordable in good condition, but in this buyers’ guide we will focus specifically on the factors that affect buying a property for your child.
There are several important considerations before you embark on a house-hunt for your child. Some of the most pressing include:
If you already own a second home and want to give it to your child, remember that inheritance tax may be owed if you die within seven years of transferring ownership. Capital gains tax may also be payable.
You should also speak to your bank if you intend to give cash to your child to help them cover the initial deposit on a mortgage, as some banks impose a limit on this.
If you want to keep the property in your name but allow your child to live in it, check the tax implications of buying a second home, and in particular whether a higher rate of stamp duty will be payable.
You could enter into a joint mortgage, to help your child pass the qualifying criteria. Again, there may be tax implications arising from this, so speak to a professional and independent tax advisor before you sign anything binding.
A further option is to place the property in trust, with your child as the beneficiary. This gives your child rent-free tenancy of the property and the right to inherit ownership when you die.
Again, this is something a professional financial advisor or solicitor can advise you on, and they can also draw up the paperwork to ensure the arrangement is legally binding.
Finding the right property can depend on your child’s circumstances, as well as your own circumstances and your varying personal tastes. Remember that if you are buying a property solely for your child to live in, their needs and desires should be the priority.
At the same time, you may want to make sure that the purchase is a sound investment. This rational approach can be at odds with the emotional response to a property, and having more parties involved in the house-hunt only complicates the matter.
Buying agents like Black Brick can help to simplify the process of finding a property for your child. We can work with your child to advise them and guide them towards buying the best possible property, which meets all of their current and future needs, crucially at the right market price.
We can also take into account future plans. For example, if your child will live in the property until they graduate university, but is then likely to move out, it’s a good idea to put more focus on resale and rental potential.
You might also want to look at properties with additional bedrooms, which can be rented out to further tenants as a source of income.
Black Brick can help you secure properties you might never find on your own. Our Cornford Grove case study is a great example of this, where we helped one family to buy off-market when it became clear that nothing suitable was available.
Living alone for the first time can be quite a daunting prospect, but there are several ways to make it easier for your child to feel at home in their own place.
It is always sensible to speak to an independent financial advisor to decide how much financial support you will provide for your child’s purchase, and what form that support will take.
We have already addressed some of the key questions above:
You will of course also need to know how you will finance your share of the purchase. If you plan to use your savings, you should be aware of any risks arising from that. You might not be able to remortgage your own house to raise funds, depending on your age and working status.
Finally, if you intend for your child to repay the money to you in the form of a loan, it’s a good idea to put a formal written loan agreement in place. Even if you trust each other, this can help to avoid any future disputes that might drive a rift into an otherwise happy parent-child relationship.
To make a start on the process of buying a property for your child, speak to Black Brick. Our buying consultants can guide you through the procedure and begin the house-hunt to find properties that match all of your (and your child’s) criteria at the best possible buying price.
Find out more about our property search and buying services and book your initial consultation today.
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.