Research reveals just how much financial support first time buyers get from parents
Parents are loaning an average of £24,347 to help their children get on the property ladder in the UK and for those who gift the money it is £32,101, according to new research.
Overall some 16%, one in six, of first time buyers, amounting to 2.2 million, are funding their home purchase with a parental loan yet 87% of them have no property agreement in place, according to the report from Post Office Money.
Indeed, the majority of parents do not formalise an agreement with their house buying children and are failing to provide a deed of gift or letter of intent which could put them at risk legally.
Only one in five buyers agree a monthly repayment plan with parents. Those who do pay back £500 a month for an average of four years but 23% will need to renegotiate due to a change in their circumstances, the research also found.
Parents on the whole are very keen to help their children realise their property dreams with 83% wanting to do so. Some 38% do so on the understanding it will be a loan. They say this is to protect their own finances and also to be able to help more than one of their offspring.
However, young people are often hesitant about borrowing money with 82% saying this is how they fell and 20% saying this is because they want to maintain a good relationship with their parents.
Some 29% agree a verbal agreement over a loan but 19% confessed to not even discussing the terms of the loan from their parents. Only 16% consult a third party, such as a solicitor and the vast majority of parents are neglecting to put a letter of intent or deed of gift in place to formalise their financial support.
Without this, both parents and buyers are left legally vulnerable and could even be pursued for additional costs such as stamp duty, says Post Office Money.
For those that do sit down to discuss the terms of their loan, many factors are commonly considered to help ensure repayment is fair including household income, the potential for their income to grow over time and their cost of living.
Just 21% agree a regular repayment plan with parents showing a great deal of trust in their children to pay them back ‘at some point’, the survey found. However, only 4% of young buyers who borrow will miss a payment but much more often families will have to renegotiate, due to a change in circumstances.
Owen Woodley, managing director of Post Office Money, said:
‘The level of support that the UK’s parents want to provide their children is truly heartwarming. High house prices and a challenging cost of living has meant that families have had to increasingly live out of each other’s pockets to make the most of their combined financial capability.
‘Indeed, 46% of young people who receive money from their parents anticipate that they will support them financially later in life. Despite this, it’s important for everyone to be clear about the nature of their agreement so that everyone’s expectations are aligned.’
The Money Charity has worked with Post Office to create a new guide to help parents and adult children navigate what may be a pretty heavy, but very important conversation.
Money Charity spokesperson Stephanie Hayter said:
‘This new aspect of your relationship with each other will impact your family dynamics as well as your finances, so it’s important you get this conversation right and make sure everything is carefully thought through. Then you can feel confident and enjoy the journey together.’
Kindly shared by Property Wire