It is a dream for many parents to be able to pay for their children’s uni education, driving lessons, and a home. The problem is that most people’s budget doesn’t stretch to cover everything – and definitely not when you have more than one child!
By the time most children start taking driving lessons, they have a part-time job and the bit they really need help with is buying a car. All in you can get a car for a few hundred pounds – granted it’s not new, but it’s safe, and it works. Perfect!
When it comes to university, a mix of part-time work, parental support and student loans usually do the trick. It can be challenging when they move away from home but manageable.
What comes next? Oh yes! The big one. A mortgage isn’t something that many 18-year-olds typically think about, but you can be a step ahead of them.
Should you help you child buy their first home?
There is a lot to be learned about financial independence and how much life really costs. But most parents would love to be able to help their children have somewhere secure and safe to live – when they leave their first home.
This shouldn’t be something that will impede on your day to day living or a risk in your mind. An agreement is most likely going to be required, but that depends on the type of relationship you have with your children. And, how much you are gifting/borrow to them.
Why do children need help to buy their first home?
We have all seen comments in the media and the news, that if a certain age group simply ate less avocado and drank less off they’d afford a home. Yet, it’s just not true. Here are some examples of inflation over the years.
We are taking London as an example:
According to home.co.uk in January 1995 a flat would’ve cost £89,579 in August 2020 it a huge +557% increase and prices are from £558,607. A detached out costing £257,748 in January 1995, will cost £1,447,470. Yes, you read that correctly an increase of +462%. The jump is more than a little consideration, and definitely more than the cost of avo-toast.
It is essential to be empathetic to the struggles that the younger generation will have when it comes to buying their first. And, most likely if you can help, you should.
How can you help?
With hindsight, you probably would’ve set up a savings account, and put even £10 a week in. Perhaps covering the fees for the solicitor. That being impossible, there are a few things that you can do if they make sense to your circumstances.
Give them the cash is the most obvious one, but that isn’t a possibility for everyone. In most cases, you can give you child as much money as you wish to, however, if you pass away within seven years, you will need to understand the implications of inheritance tax.
Are you helping by borrowing money?
You can choose to lone the money, with more favourable rates than the bank. If you decide to charge interest, it has to be less than the rates of lenders. However, if you were to charge interest, it’s not really as helpful as it could be.
If you don’t have spare cash then, there are still some things that you can do.
You can use your own home to borrow money in the form of a secured loan. This might not be ideal, as if anything happens, your home would be at risk. This is why it important to make sure you consider all of the possibilities and have a plan if things don’t work out.
Are you helping without borrowing money?
You might now want to borrow money in order to help your children out, and that is perfectly fine too. You can also be a support for children that wish to borrow money.
Joint mortgages are possible. You are liable for any payments too here, but you would also legally own a share in the property too. You would need to have an agreement with your child about how much each of your pays, and what happens to the house when it is paid off. And, at a later date could they pay it fully themselves.
Guarantor mortgages are a popular option too. You can help you child buy a home, but you don’t have to put any money into it – unless they default on payments. If they couldn’t pay, you would need to cover anything that is missing.
What are the risks of a guarantor mortgage, and should you take the risk?
Do they really need your help?
Sometimes even though we want to help our children, they don’t really need more from us than to help them get the paperwork in order, sitting with them while to use mortgage affordability calculator, and looking at houses with them.
You can help them come up with some deposit saving budgets, including moving back into the family home if they are currently renting so that rental money can go into the deposit.
Research help to buy schemes, rent to buy schemes and even shared ownership schemes are all worth consideration. However, talking about their options with family and friends can help them make a decision that they are happy with. They might also like you to attend an appointment with financial advisors and mortgage brokers too. So they have an extra set of ears soaking up the information.
Teaching your children how to be responsible with money is one of the biggest things that you can do as they grow up. Encourage them to avoid debts where possible, read and understand terms in contracts and what ‘good debt’ is and why it is essential.
That support can give them the confidence to take bold steps forward with their lives. And, knowing that you are there should they need it is absolutely priceless.