A leading housing market analyst has made a stout defence of the growing trend of young buyers relying on their parents to help fund their first property purchase.
Kate Faulkner writes in her Designs On Property newsletter that recent Social Mobility Commission research showing over a third of first-time buyers relying on parental gifts or loans when it comes to purchasing a home - the survey was reported on EAT here - did not take account of new realities in the home ownership landscape.
Firstly she says that even by the commission’s own figures a healthy majority of first time buyers, 68 per cent, undertake the purchase without parental contributions. Secondly, she says that with over half of homes owned outright, why wouldn’t parents in that position want to try to help their offspring buy?
“This means parents and other family members are in a stronger position to help; and who wouldn’t want to help their kids if they could? So, is the Bank of Mum and Dad more active because parents can help, rather than because they need to?” Faulkner asks.
Faulkner - best known for her analyses of the buy to let market - also makes a defence of the growing trend for younger adults to rent rather than own.
“If you can rent a decent property – often in expensive areas for much less than you can buy and paying no more dead money than you would be paying to a lender as opposed to a landlord - why would you buy? You’d have to give up the ‘good life’ for some years to raise a deposit and then you’d have to pay more in repayments” she says.
Faulkner also says that some of the country’s largest falls in the numbers of first time buyers have been seen in areas like the north east of England, where prices fell sharply during the downturn and ‘entry’ to the housing market is relatively easy.
“What I’d be interested in comparing is how many media reports focus on buying a home with a small deposit against those telling people it’s impossible to get on the property ladder” concludes Faulkner.
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Getting the deposit from the bank of mum and dad is fine, as long as both parties get good independent legal advice. Especially if their offspring are buying with another person as a couple.
For example, is the deposit a gift or a loan? If a loan how will it be secured? Where is the money coming from exactly? Lenders will also want to know the answer to these questions.
Do the young couple want to own the property as Joint tenants or tenants in Common?
What happens to the loan if they split up?
What happens to any profit created when the property is sold, who gets what percentage?
The subject of making Wills should be discussed.
Best not leave all of this until just before exchange!
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