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Parental support will help to secure
300,000 mortgages in 2016 and lead to
home purchases worth £77 billion, the
Legal & General research calculates.The
average contribution is £17,500 and in
57% of cases is not a loan but a gift.
This change in wealth and earning
patterns is also changing attitudes to
passing money through the generations.
Many of those born before the Second
WorldWar (the parents of the baby
boomers) still want to leave their money
to their families on death, notes Ian
Price, St. James’s Place Divisional
Director.‘For them, born as they were
in the 1920s and 1930s, it has always
been about saving for the future,’ Price
says.‘But the baby boomers want to help
their families today, rather than leaving
all their wealth as an inheritance.’
For some aspiring homebuyers, family
support can mean the all-or-nothing
di erence between buying and renting.
Alternatively, it may allow the purchase
of a two-bedroom instead of a one-
bedroom at, for example, so that the
young couple won’t have to move as
soon as the rst baby help
a young relative in this way, gifting may
be the most straightforward
do so, you could use cash savings or
borrow against your investments, as long
THE INVESTOR | 21
1 July 2016
2,3 , May 2016
INTERGENERATIONAL FINANCE
IN YOUR INTEREST
T he term‘generation rent’
has been coined as young
adults struggle buy homes.
Yet there are a growing
number of ways to help
young relatives obtain a rst mortgage.
Caught between soaring house prices
and at earnings, millennials (those
born between 1981 and 2000) may
become the rst generation to record
lower lifetime earnings than their
predecessors, according to Stagnation
Generation, a recent study by the
Resolution Foundation and the
Intergenerational Commission1.
Today’s 27-year-olds are earning the
same as 27-year-olds did 25 years ago,
the study says. It adds that a typical
millennial has earned £8,000 less during
their twenties than those in the preceding
generation, known as Generation X.
Even as their incomes stagnate, housing
has become much more expensive, and the
study points out that baby boomers, born
following the SecondWorldWar, at age 30
were 50% more likely to own their own
home than a millennial at the same age.
On interest rates alone, mortgages
are more a ordable today than they ever
were. But elevated house prices and
more conservative loan-to-value ratios
dictated by lenders mean that raising
a su ciently large deposit is beyond the
reach of many would-be homeowners.
The government’s latest English Housing
Survey2 reports that between 2005 and
2015 the proportion of 25- to 34-year-
olds buying with a mortgage fell from
54% to 34%.
Enter the Bank of Mum and Dad.This
year, parents will hand over more than
£5 billion to their children for the
purpose of buying a house, according to
research by Legal & General and the
Centre for Economic and Business
Research3.That sum is enough to rank
the Bank of Mum and Dad among the
UK’s top 10 mortgage lenders.
£5 billion is enough
to rank the Bank of
MumandDad among
the UK’s top 10
mortgage lenders
as it doesn’t harm your own nancial
plans. It does mean you would
immediately lose control of the gifted
money, and the gift could have
implications for InheritanceTax.
On the other hand, you may prefer
not to gift a sum of money outright.
An alternative is to use your wealth to
support a younger relative by providing
extra mortgage security.With a ‘secured
deposit’, the interest rate on the
mortgage, and therefore the level of
monthly repayments, is reduced.This
provides assistance while retaining
control over wealth. But the deposit will
not be accessible until the mortgage is
renegotiated or paid o , and is at risk if
the repayments are not kept up.
A third way of helping with the
mortgage is to apply for the mortgage
jointly with the young relative.The
lender would include the older relative’s
income in deciding whether the
mortgage was a ordable. If it decided
to o er a mortgage, it would be to both
parties, and the older signatory would be
liable for any repayments if they were
not kept extra feature o ered by
certain lending banks is critical to this
method of support.These banks do
not require the joint applicant to be
registered on the title deeds, meaning
you don’t own the property and it is
not included in your estate.This is
crucial to avoid exposure to Stamp Duty
and any other tax implications of you
buying a second property.
While getting on the property
ladder becomes increasingly di cult
for millennials, there are a number
of opportunities for families to help,
making home ownership achievable.
Balance sheet Consult your St. James’s Place Partner
about the most appropriate ways for you to help your
younger relatives obtain a mortgage while you continue
to plan for your own future.