property ladder

Getting on the property ladder in the UK

In the UK, the traditional home buying strategy has been changing for young first-time buyers and millennials. How so? They are asking mum and dad for a loan before going to the bank.

Buying a home is more expensive than ever, reaching the home price rates of 2007 all across the country. People are staying in their parent’s home longer, renting, and sharing prices with room mates over buying a house and this has actually made lending standards more difficult to reach, especially with the high deposit standards.

The average price for a first time home purchase in 2014 has risen 10.5% over 2013, bringing the price to £192,000 (with a 10% deposit around £20,000). Many of Britons young are borrowing from their parents to cover that deposit and get them started, a Shelter UK polls estimates that the average loan parents give their children at about £23,000 so those numbers match what some may expect.

If this is something you yourself are considering doing to help your child (or other family member) in their first home purchase, the below options are good ways to feel secure in this high loan expenditure without denying your child or loved one the help they may need.

1. No matter what, have your family loan written out in some sort of legal agreement. While it may seem awkward to do to your children, it can also help them learn more about different financial options, help them feel a sense of responsibility in paying you back, and also help ease any worry you may have in giving a loan to a family member. These legal documents should share how much you are loaning, if there are any below-market interest rates applied, and if there is a specific date you expect the loan to be paid out.

2. If you don’t have the funds to give the money to your child but you’d still like to help out, you have the option of taking a loan against your house and then giving that money to the family member in question. This does make your own home collateral for the loan, which is riskier if your child ends up not having the money to pay you back (due to job loss or health emergency, whatever the case may be) but it is an option to consider if you think your child is responsible enough to trust with this risk.

3. If you work with a solicitor, you can create a deed of trust with the borrower. This would mean that in return for the loan, your family member would pay you back a certain amount when they eventually sell the house. You could set a flat fee or a percentage of sale purchase, whatever you think would be the most beneficial for your loan situation.

4. If you are lending money to an only child, a Lifetime Mortgage can be used to give your child an early inheritance. This is a great way to give your child the money they need now for their home, but it also prevents them (in most cases) from getting any additional money from the sale of your home when you pass away or join an assistive living (or long term care) facility. This can be complicated if you have more than one child, however.

5. If you can’t give your young home buyer the money, you can help them get a loan from the bank with a guarantor mortgage. This means that if your child falls behind on payments, you agree to cover their payments until they can start paying again.

While an increase in home productions could help ease these difficult barriers to entry for new home-buyers, it’s not something we see happening soon since the building of homes has stayed steady at less than 100,000 new residences per year over the past decade. This is hurting entrepreneurs as well, who have been moving their officers away from the city so that they can afford to hire more employees in areas that don’t require higher salary commitments to meet the cost of living.

Until the price to buy for first time home-buyers decreases (as well as the cost of living in the UK), Britons may have to continue to rely on the support of people that have a longer standing credit and earning history – their family.

House Repossession

When you are purchasing a house, the thought of house repossession understandably doesn’t pass by your mind, and while it is quite a morbid thought, it is important to think about it a little bit, because it will have a considerable effect on your finances.

A house is perhaps the biggest financial investment you will ever make, and that’s why it is important to think about everything related to this investment. In most cases, your payments continue for around 25 years, and that’s why a proper mortgage that fits your abilities and needs is required.

Try to put as big a deposit on the house as possible, as it enables lower monthly payments. This makes keeping above the water a much more manageable task.

It is important to research about mortgages before applying for one, because even though a particular plan may seem favourable and affordable on the outside, it may actually have extremely severe penalties which means that it won’t be very useful.

Of course, you must ensure that your financials are in place when applying for a mortgage, as it makes things much more easier. Make sure you have the necessary paperwork such that it is easily accessible.

There are three main questions asked when applying for a mortgage: How much you pay up front, how much you pay in monthly instalments and the incentives you get with the mortgage (If any).

Mortgage lenders don’t focus on your financials always, and that means that you may sometimes be stuck with a mortgage that you can’t really afford, and later on, that would lead to a house repossession. , which is why it is important to look at your financials and other factors influencing your decision in order to determine a monthly instalment that is affordable while not increasing the mortgage time significantly. You should also ensure that you pay off your monthly instalments on time, else you may face unwanted penalties. For instances, over 21,000 house repossessions were observed in the UK in 2015, according to the Council of Mortgage Lenders:

  It is a good idea to keep emergency money aside in case something unforeseen happens. You wouldn’t want to miss your payments, which is why money set aside for emergencies can come in handy.

In case you are not able to settle your monthly payments, make sure to discuss this with your mortgage provider. House repossessions are comparatively rare, and if you offer them an alternative solution, they may certainly accept. This is why you need to talk to your mortgage provider when you are facing financial issues.

In case you do run into troubles with mortgage providers, don’t be afraid to consult a solicitor. Sometimes, these mortgage providers try to bend the rules, and if they are breaking some rules when repossessing your house, it  buys you more time.

Once again, make note of penalties when getting a new mortgage. You should ensure that your mortgage penalties fit in with your workflow, and that there aren’t any difficult conditions to adhere to. When comparing mortgages, make sure to compare the penalty causes and costs, and use it as an important factor when getting a new mortgage. This enables you to pay less, and thus would be much more manageable Without proper research, you would go deeper down the penalty hole, and you would be wasting money just blowing through these penalties.

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