Christmas is coming and the geese are getting fat...
As the old rhyme goes, “… please put a penny in the old man’s hat?”. Charity, they say, begins at home, and when it comes to property it could well be the children’s ‘hat’ that ends up receiving a great many of your hard earned pennies.
The return of house prices to 2005 levels in the north and a substantial increase over the 2005 level in London and the South East, is good news for existing property owners but not for those who want to step on to the first rung of the property ladder.
First time buyers are now required to find sizeable deposits. This is due, not only to the increase of house prices, but also the fewer mortgages available from lenders since the introduction of more stringent lending rules imposed on and implemented by them since spring 2014.
Shared equity and ‘Help to Buy’ schemes are available but are often not suitable for many potential buyers or types of property. Which leaves many parents finding their off spring moving back in with mum and dad, with or without their partner, children and pets, so that they can economize on their outgoings and save up for a deposit faster.
Parents are also finding that they have to supplement these deposits by making gifts or loans from their own capital savings, or from further borrowing on their own property. A small price to pay perhaps for ensuring your children have their own roof over their heads and move out from under yours!
For any financial arrangement within families it is important that everything is clearly agreed and documented. Not required you think? Think again, if down the line there is there is disagreement, even divorce on either side, a legally enforceable agreement will be very welcome. The agreement should include the basis on which the funds are being provided, e.g. is it is a gift to your son/daughter or to them and their partner jointly? Is it a loan to both? And is interest to be charged on that loan and in what circumstances is the loan to be repaid? Both parents and children should take independent legal advice. The advice often given to the parents is to secure any loan with a mortgage on the property; however, the lender who is providing the mortgage for the children does usually not permit this.
With the more stringent lending criteria some first time buyers are not able to secure a mortgage at all, in which case one solution is for parents to buy a property on a buy-to-let basis. This takes advantage of the current low interest rates and they then let the property to their children. But beware you will need to find a buy-to-let lender that permits letting to members of the family, as not all do.
Whatever the solution you choose to help your family, it will undoubtedly cost you more than a penny but if you are wise the ‘hat’ will not prove to be a bottomless pit. A very Merry Christmas from me and my team and all good wishes for an enterprising New Year.