Helping Your Child Onto The Property Ladder

1st October 2012

p pWhen buying a first home nowadays, parental help isnrsquo;t just useful, itrsquo;s often vital. According to the Council of Mortgage Lenders, 80 per cent of all new buyers aged under 30 now get financial assistance from their parents, compared to just 35 per cent back in 2005./p pHowever, that doesnrsquo;t mean the only young people who can get on the housing ladder are those whose parents can spare pound;50,000 for a deposit./p pTake 24-year-old Megan Walsh. Shersquo;s in the second year of a veterinary medicine course at the University of Nottingham, and yet she is already a homeowner. And no, her parents arenrsquo;t hedge fund managers; father Mick is a programmer with a trailer-manufacturing company in North Wales, while mother Jeanne works as a performance coach with a variety of energy companies./p pThey were resigned to paying rent for Meganrsquo;s university accommodation until they heard about a mortgage scheme run by the Bath Building Society, called Buy For Uni. Although Megan didnrsquo;t have enough money of her own to buy a property, Jeanne and Mick were able to take out a pound;20,000 loan, secured against their own home, which they gave their daughter as a 20 per cent deposit on a property in the Clifton area of Nottingham./p pSo although the mortgage is in Meganrsquo;s name, and itrsquo;s up to her to make the monthly repayments, her parents are the guarantors./p pHow does she earn the money to meet her mortgage payments? Simple she rents out a room to a fellow student, which not only covers the mortgage but also leaves a little surplus./p pldquo;Essentially, Megan lives rent-free in a property which we will one day sell, and perhaps make a bit of money on,rdquo; says Jeanne. ldquo;And thatrsquo;s a lot better than the previous situation, where she was paying pound;100 more per month to rent a one-bedroom flat than she now pays for a three-bedroom property that we own.rdquo;/p pAstonishingly, the building society is prepared to fund 100 per cent of the cost of a property, with the proviso that parents have to put up a slice of their own home as a guarantee. Risky? Not a bit of it, says Bath Building Societyrsquo;s head of lending, Steve Matthews./p pldquo;Over the years wersquo;ve been running Buy For Uni, wersquo;ve lent pound;15million, and only had one missed payment, which was quickly made up,rdquo; he says. ldquo;We feel itrsquo;s a very secure form of business. Basically, lsquo;Johnnyrsquo; knows that if he misses a payment hersquo;s got to answer to his parents.rdquo;/p pAlternatively, parent and child can go into the venture on a 50-50 basis, as did education consultant Jackie Beere, from Towcester, and her daughter Carrie./p pldquo;Carrie was left an inheritance,rdquo; says Jackie. ldquo;It wasnrsquo;t enough for a place in London, where she was working, but we calculated that if we pooled resources we could buy a property in this part of the world.rdquo;/p pThe property they chose was a two-bedroom, pound;190,000 flat on a new-build development in Milton Keynes, which they decided to rent out. ldquo;Not only do we both receive a monthly income from it, but I have the comfort of knowing Carrie has used her inheritance sensibly,rdquo; says Jackie./p pMore and more parents, it seems, are starting to view a first home for their children as a joint venture. Developer Taylor Wimpey has even come up with a scheme called Family and Friends Advantage, whereby the money that parents put into a property purchase is viewed not as a gift but as an investment, earning them five per cent interest over a five-year period./p pPut pound;30,000 into the pot, for example, and yoursquo;ll receive pound;7,500 in interest once the half-decade is up; which represents a much better rate of return than if you were to put that money into a building society. Plus, you get the satisfaction of helping your offspring onto the housing ladder./p pThat said, there are plenty of parents out there who are prepared to dig deep on their childrenrsquo;s behalf, without any prospect of financial return./p pTake Alan Hodgson; he was so keen to get his daughter Sarah on the property ladder, that no sooner had he read a newspaper article about the launch of a new Barratt Homes development in Colchester, than he drove there and put down a pound;500 holding deposit on her behalf./p pHe later added another pound;4,500 to the pound;2,251 that Sarah put in, achieving the pound;7,251 required for a five per cent deposit on the asking price of pound;144,995. Twenty per cent was then forthcoming, as part of the FirstBuy initiative, from Barratt and the Governmentrsquo;s Homes and Communities Agency, and the remaining 75 per cent took the form of a mortgage./p pFirstBuy, it should be explained, is the counterpart of the NewBuy scheme, and involves Government and developers partnering to provide first-time buyers with 20 per cent of the purchase price, in the form of an equity loan. By contrast, NewBuy is open to all homebuyers (with certain restrictions) and enables them to take out a 95 per cent loan-to-value mortgage (compared with up to 80 per cent for FirstBuy)./p pldquo;The FirstBuy initiative was crucial to my purchase,rdquo; says Sarah, who is a primary school teacher and now the owner of a smart, new two-bedroom apartment, overlooking the River Colne. ldquo;Without it – and my dadrsquo;s help – it just wouldnrsquo;t have been possible.rdquo;/p pFor more details of the Buy For Uni mortgage, visit www.buyforuni.co.uk. For information on FirstBuy, visit www.firstbuyscheme.org.uk; for NewBuy, visit www.newbuy.org.uk/p /p

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