The evolving crisis. How can we help our kids onto the property ladder if we’re struggling ourselves?

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Today’s contributed post discusses the struggles of helping our (future) kids on to the property ladder from the perspective of a 20-/30-something.

In today’s climate of high house prices, many people in their 20s and 30s are struggling to gain a foothold onto the property market, and we often need help from family to achieve this.

What about the next generation though? Without help, do they even stand a chance?! What can we be doing now to help mitigate this evolving crisis?

Read on and find out….

Precarious Financial Positions

There can be no doubt that the landscape for first-time property owners is grim. There is a shortage of affordable housing, interest rate rises on the horizon, and the nature of modern employment — remote working, the gig economy, freelancing — is potentially not conducive to saving and buying a house.

Mortgage companies are making it increasingly more difficult to get a mortgage too, so it’s no wonder that people are struggling.

The above is absolutely true for the 20- and 30-something’s, with 26% percent of people in their 20’s staying at home with parents in 2017- that figure is set to continue to rise.

The issue however is likely to be even more pertinent for our children. Unlike many of the current generation, the next generation may struggle to buy a home at all, because they can’t rely on the “bank of Mum and Dad”– the bank of us (assuming you’re currently in the 20-40 age bracket).

As finances are becoming more precarious for our generation, and home ownership is a dream many people will likely never achieve, we’re simply not going to have the cash to help fund a house deposit for our children– at least, not unless we specifically plan for it.

How people are buying homes today

More and more people are having to rely on their parents (or grandparents) for assistance in their quest to become homeowners.

There are two ways that this tends to happen:

1. People are living at home for longer, so they don’t have to pay the extortionate market rents and are thus able to save for a deposit for their own home.

2. People are borrowing (or being gifted) their deposit from relatives. This has always been an aspect of first-time home ownership, but levels of family borrowing for a deposit have rocketed in recent years.

Unless there is a huge cultural shift, this means that we – a generation who are struggling to obtain consistent levels of home ownership for ourselves — also have to spare thought for how our children will cope.

If you own your own home…

… then this issue is something you may want to investigate. If your kids come to you in 10 or 20 years time and need money for a house deposit, then how are you going to afford it? Are you going to take it out of your general savings, or should you have a separate account reserved for just this purpose?

Some people remortgage their home to release some equity, and this could be a way of providing a deposit for your children. However, the older we get, the less happy banks are to lend money, plus, do you really want to be paying a mortgage into your old age?

You also need to think of potential ways you could reduce the cost of your children’s home, so you do not have to worry about saving thousands upon thousands of pounds. Creative living might be an option!

Your kids could browse houseboats or (dare I say it), mobile homes for sale, both of which offer a kind of home ownership, but without the price of “proper” property. It’s not something that would be suitable, or even desirable for everyone, but it is an option.

If you have a decent piece of land attached to your property, could you look at building on it? Converting old outbuildings could be an option too. Ask local architects and gain appropriate planning permissions before you do anything though, otherwise you risk having the whole thing torn down.

These kinds of compromises need to be talked about with your children, so they have some idea of what they can expect in terms of financial help from you when buying a home in the future.

You may be of the opinion that you won’t help your children to buy their first home, therefore teaching them great money saving skills is an absolute must.

If you don’t own your own home…

… then in truth, getting on the property ladder for yourself should be your primary financial priority. You can still talk to your kids about more affordable housing options, but for the most part, it isn’t great financial management to begin to set money aside to help your kids get on the property ladder.

Your oxygen mask first remember?

Alternatively, when your children reach student age, combine house purchasing with their accommodation. Creating an HMO is a good way of having several people move in together to pay the rent and bills. Obviously you’ll be living elsewhere and still renting, but at least you know you have a property that is quietly building value in the background and bringing you in a second income (that you could save to fund a second deposit). Then, when they leave uni, you either move in, or sell.

There is a caveat to this. You may struggle to get a mortgage to do this if you don’t yourself have a property first, and don’t have any buy-to-let experience. There are ways to work through this, but you’ll need a great broker with a background of creative mortgages, so ask around for recommendations. You must also ensure you buy in an area that needs HMOs. There can be several pitfalls and restrictions, so be careful!

The bottom line is, save as much as you can from when your kids are young. Planning is key! Get started on a fund early. This could involve setting up a junior ISA and maxing it out every year. Putting it in stocks and shares would be even better so it can grow faster than inflation. Also, there are many first time buyer savings accounts that the government will pay bonuses into, so it’s work looking at- the help to buy isa and the lifetime isa are such options.

In conclusion

How you deal with this issue very much depends on your personal circumstances at the present time. If you can save, then putting cash aside for your child’s eventual home is a good idea, but then teaching them good money management is essential so the money is handled properly. If not, then focus on improving your own finances and find a way to bring in a second income that you save religiously for this sort of project is an absolute must.

You may not feel it’s your duty to help out your kids at all, and this is absolutely ok! Encouraging them to seek out their own path is a great way of teaching useful life skills.

Final Thoughts

There is no secret to home ownership in all honesty. It boils down to being able to afford the mortgage (easier with two people contributing) and a decent chunk of deposit money.

Secondary issues relate to having a good credit score and making sure your finances are in check (no use of your overdraft or gambling sites for at least 3-6 months for example). Talking to others who have already achieved what you want is a good thing to do too.

Choosing a good area with cheaper house prices and considering part ownership are ways to mitigate high purchase costs, but until the planning and construction industries are dramatically revamped, and the government commits to creating many more affordable homes, property developers are going to do what works for them (and their profits) first- and honestly, who could blame them.

Now over to you. What are your thoughts on saving for your children’s property endeavours in the future? Is this something you’re willing to do? Is this even something you can even afford to do? Let me know!

Until next time,

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[…] could be to create a savings account that can be passed down to those left behind. You can usually add a child to a savings account, giving them access only when you die. This ensures that these savings get left to them and them […]

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