The bank of mum and dad is old, albeit still very relevant, news. For Londoners particularly, a first-time purchase without help is all but impossible for the majority of under 30s. It’s estimated that over 60% of first-time buyers receive some financial help from the older generation. The figure is even higher in the capital.
For most parents and grandparents, the toughest part of this exercise is raising the funds, either through downsizing, re-mortgaging their own home, guaranteeing the mortgage in some way, or releasing equity from other investments. But Sara Ransom of Stacks Property Search says that she is increasingly being asked to help children find properties by parents who are gifting the entire sum. And although it may be hard to feel sympathy for parents in this position, Sara Ransom says it throws up a range of different challenges.
Ransom said, “First time buyers who are looking at investing large sums of their own money, and / or paying a big chunk of their income every month, are necessarily incredibly careful about what and where they buy. The danger for a buyer who feels no financial pain is that their decisions may be less considered.
“We have helped two such families in the recent past. The parents wanted their children to conduct the search, with our professional advice, and to understand all the ramifications of the investment and the property choice. We helped the children prepare something akin to a business plan, justifying the kind of property, the location, and demonstrating that they realise the long-term value of the gift.
“For a late teen or early 20s, essentially with anything from £500,000 to £3m in their pocket, the property portals are akin to a rarefied sweet shop. It was important to go through a process with the children to allow them to understand that the right property needed to meet many requirements, not just a cool apartment in a hip location that looked exciting right now. Understanding that a property purchase should be a long-term decision is vital.
“One of the hardest choices when buying for the first time in London is location. Young buyers are likely to be in their first job, their requirement is for interesting surroundings, and the possibilities are endless. Shoreditch, Borough and Brixton come up time and time again as the area of choice for a young buyer, but long term, these locations are far from ideal. Young singles quickly become young families with young children, and these areas don’t tend to have a supply of family homes, and aren’t very child-friendly. (There’s a distinct lack of parks and soft play areas!).
“We would urge younger buyers to look at areas like Brook Green, Brackenbury Village, Islington, Clapham South, Islington, Battersea, Clapham South, or Putney, to name a few. These are safe areas that have transferrable qualities for guaduates to young families. Where family members live outside London, it always makes sense to look at an area that corresponds geographically.
“Buyers should also make sure the property they choose is relevant to the area, for both resale and rental purposes. For instance, finding a loft conversion type property in Fulham will be harder to find a tenant for than a small terraced house. Life plans can change so dramatically at an early age that it makes sense to buy a property that will perform well in the rental market.”
Top tips for buyers and providers of the finance include:
1: Think about other potential sharers, either family, partners, possibly tenants, and in the longer term, children. A one-bedroom property is very limiting.
2: As much as the purchase should be sensible and make long-term financial sense, it is essentially a home. Don’t make decisions based on capital gain rather than what makes sense in terms of a safe and happy roof.
3: Just because a certain amount of money is available, don’t feel compelled to spend it! If something perfect is available that comes in under budget, don’t rule it out.
4: Make a good assessment of the financial obligations in terms of outgoings and maintenance, service charges, council tax, utility bills, repairs etc. First-time-buyers may not be familiar with these responsibilities.
5: Don’t underestimate the importance of good transport links, and not just those that suit your current place of work. The chances are your work location will change several times in the future.
6: Understand the ‘product’ ie don’t dismiss leasehold properties just because you aren’t used to the idea – a property with a long lease is a good purchase as long as you don’t have huge service charges.
7: Don’t fall for the gimmicks – cinema rooms, gymnasiums and spas in developments might seem great now but you will pay for these services in your service charge.
8: Learn the area, take a walk around an area in the evening as you will get a good feel for how ‘safe’ it is and the types of people who live there.