Turn home ownership dreams into reality
Q. Can parents and grandparents help their children or grandchildren buy their own home without handing over any money to them? A. Yes
Most young people dream of owning their own home. However, for many, those dreams of home ownership are slipping out of reach. Rising property prices have made finding the necessary deposit difficult and many young people now face the prospect of renting well into their 40s or beyond.
Many first-time buyers turn to the bank of mum and dad – or even gran and grandad – to help them buy their first home. In fact, around 60% of under-30s get help from their family to buy a home*, while one in ten grandparents have gifted grandchildren with enough money to secure a mortgage on a property**.
Naturally, you want to help your children get a step on the housing ladder. But if you are fortunate enough to be able to help, you need to be sure you are not putting your own financial security and retirement comfort at risk.
If you are able to help a family member to buy their own home, what is the best way to go about it? Is it better to give or lend? What about tax issues? And what if you need your money back?
Getting the right financial advice is essential. A financial adviser will be able to explain the risks and help you understand the impact on your own personal finances.
Smith Eliot Financial Management in Stamford has a team of three mortgage advisers with the experience and knowledge to help clients find a tailored solution.
of Smith Eliot, said: “If you can afford to, the simplest option may be to give money to your children or grandchildren, thereby providing or increasing their deposit. This will reduce their initial mortgage debt and subsequent monthly repayments. However, not everyone is able to gift large amounts of money and even those with the available funds may not want to part with so much cash.”
“One of the obvious downsides is that if you do gift the money, you immediately lose control of it, and this may affect your own financial plans. But there are other options.”
One such option is the Secured Deposit Account, available exclusively through St. James’s Place. This allows you to ring-fence your capital in a non-interest-bearing account linked to your child’s mortgage. The money, referred to as the ‘secured deposit’, is not gifted to your child, but acts as extra mortgage security. This helps to reduce their monthly mortgage repayments.
It can be funded by cash, or even by borrowing against your investments, although you should seek advice to determine which approach is most suitable.
One key advantage is that, typically, the money becomes available again once your child’s earnings have increased and they have renegotiated their mortgage so that the secured deposit is no longer required.
The home on which the mortgage is secured may be repossessed if the mortgage borrowers do not keep up repayments on the mortgage.
The St. James’s Place Intergenerational Mortgage Range, including the Secured Deposit Account facility, is provided by Metro Bank. Mortgage conditions apply and are subject to status and approval by Metro Bank.
The Smith Eliot Financial Management team is happy to arrange a no-obligation meeting to give some initial guidance and advice. Call Oakham 01572 759759 or Stamford 01780 437500 to speak to an adviser or email email@example.com.
* Tesco Bank Home Buyers Survey, September 2017.
** OneFamily, September 2017.
The Partner Practice represents only St. James's Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group's wealth management products and services, more details of which are set out on the Group's website www.sjp.co.uk/about-st-james-place/our-business/our-products-and-services. The titles 'Partner' and 'Partner Practice' are marketing terms used to describe St. James's Place representatives.