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The Bank of Mum and Dad

At Glenham we are seeing an increase in the number of clients looking to invest into a second home for their children especially while they attend further education. We have successfully helped a number of families purchase properties that work both as an investment but also as a place for their children to call home over the period they study.

Interestingly some recent statistics have shown that the bank of Mum and Dad now funds more than a quarter of all home purchases in the UK. There a number of ways of parents are helping their children get onto the property ladder some examples are; gifting cash for a deposit, buying outright or lending money for a joint purchase there are others but these tend to be the most popular.

The most common way of parents helping out is by giving their child some, or all, of the required deposit to qualify for a mortgage. Lloyds bank recently said the average loan a first-time buyer received from family is almost £24,000. The result of this is the bank of Mum and Dad now funds approx. 25% of all mortgage transactions a year according to Legal and general.

As we have discussed many parents choose to help their children while they attend further education and for those people fortunate enough to be able to afford to buy a second property there are a number of benefits. By purchasing a property for their children to live in while they study could mean that they won’t have to pay living costs as these can be covered by rental income. In addition, the possible increase in capital value could cover the cost of tuition fees and even show a return after these costs have been taken into account.

It is also worth noting that most student HMO properties are currently let over the summer recess and hence parents are having to fund their children’s accommodation while their offspring are away from their studies.

Of the above does rather beg the question if you can afford to why not buy a property for your children while they study?

Another important reason for the Bank of Mum and Dad to help with a property purchase is that it could be a way to give your kids a debt-free start in life and get them onto the property ladder at a much earlier age than the national average.

As I have already mentioned above there are many ways a parent can approach the purchase but there are also number of things to consider before even starting to search. We would always suggest the family first seek professional advice around taxation, finance and inheritance which will enable them to work out the best option that suits their individual needs.

Once all the details and the best option for purchase have been agreed then the search can start. But with this type property purchase there are still many things to consider. Buying a property in which a child is going to live is not the same as a straight investment purchase but would certainly advise it is factored into the search criteria.
For our clients who have bought somewhere for their kids to live while they study the primary considerations tend to be the amenity and comfort of the property and its location. But once these considerations have been met then it is always worthwhile looking at the possible return that the property could offer as an investment and choosing something that stacks up.

Once a property has been bought there are further things to consider not least the increasing levels of regulation and legislation around renting property. Glenham can help with the ongoing management of the property once purchased. In short, we seek to offer parents comfort that all regulatory and legislative requirements are met, we can deal with rent collection and the ongoing maintenance of the property during the term of ownership.

Lastly many of our clients who have helped their children purchase properties during their studies have chosen to keep the properties as a long-term investment and see them as a means to diversify their asset base.

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