We live in a day and age where, for the majority of twenty-somethings, getting a foot on the property ladder is a far off dream. Many young adults can expect to still be renting into their 30s and depending on mum and dad to assist financially is becoming more and more the norm.
For those living in Northern Ireland the prospect of being a twenty-something homeowner isn’t as much of a fantasy as it is a reality. The average property price in Norn Iron sits at around £160,000, and is on a steady rise. Compare this to England where you’re looking at an average price of around £250,000. So, in the grand scheme of things, your child’s homeownership prospects are not too bad.
Let’s talk about a couple of the ways which could you help your child take that first step on the property ladder.
The Help-To-Buy ISA
What is it?
You may have heard about the help-to-buy ISA which was introduced in George Osborne’s March 2015 budget and was subsequently made available on December 1st of last year. The purpose of the help-to-buy ISA is to help first-time buyers get onto the property ladder.
How does it work?
The whole point of the ISA is to encourage young adults to save for their first home. To do this the government will boost your savings by 25% up to £12,000.
So, for example if you manage to save £8000 the government will provide you with a £2000 bonus. If you save £12,000 then you’ll receive a £3000 bonus because that is the maximum bonus that can be received. The minimum bonus that can be received is £400, so you can only claim a bonus if you have saved £1600 or more. If you and a partner are saving to buy a house together then this bonus could equate to £6000 providing both of you are registered with an ISA.
You can put up to £1200 as an initial deposit into the pot and then from there a maximum of £200 a month can be saved. So it will take a minimum of 5 years to save £12,000, but that will turn into £15,000 with the government bonus.
Who is eligible?
To qualify for the help-to-buy ISA you must:
– be 16 and over
– have a valid National Insurance number
– be a UK resident
– be a first-time buyer (you can’t own any other properties anywhere in the world)
– not have another active cash ISA in the same tax year
To qualify for the bonus, the property you are buying must:
– be in the UK
– cost up to £250,000 (or up to £450,000 if you are buying in London)
– not be a second home or buy-to-let property
– not be rented out after you buy it
– be purchased with a mortgage
What are the pros and cons?
– It allows you to save up to £12,000 tax-free.
– The government adds on 25% of what you save.
– You can start saving from when you’re 16.
– Each person gets an individual account, so buying with a partner could get you £6000 from the government.
– There’s no limit on how long you can save for.
– You can combine your help-to-buy savings with other savings you may have.
– You can withdraw cash from the ISA at any time.
– You can use it towards any type of mortgage.
– You can only put in a maximum of £200 a month.
– You can only have one help-to-buy ISA open.
– If you’ve opened any kind of ISA this tax year, you won’t be able to open a help-to-buy ISA until the next tax year.
– There is no guarantee you’ll secure a mortgage.
– If you have more than £12,000 in your help-to-buy ISA you won’t qualify for the government bonus.
The help-to-buy ISA may have its cons but overall it’s definitely a worthwhile venture, particularly if your child is still in their teens. The great thing about Northern Ireland too is with current average house prices mean it’s perfectly feasible for your child to be a homeowner in 5 years with a bit of dedication and hard work!
The 100% Mortgage
Yes, you read that correctly, the 100% mortgage is back after being gone since 2008. This is an interesting one that won’t break you parents away from The Bank of Mum & Dad but will certainly make it much easier for your child to become a homeowner, and if that’s what you ultimately want to achieve, then this could be a good option.
What is it?
Barclays have recently introduced a 0 deposit mortgage and they’re prepared to lend up to 5,5 times the borrowers income at a 3 year fixed rate of 2.99%. The whole point, like the help-to-buy ISA, is to help first-time buyers get a foot on the property ladder without needing the large lump sum to throw down beforehand.
How does it work?
Now, here’s where mum and dad come in. The borrower must have a family member keep 10% of the property purchase in a Barclay’s savings account and it has to stay there for 3 years (providing the mortgage payments have been maintained). So, in essence, you the parent, are providing a ‘temporary’ deposit.
So, what are the pros and cons?
– You don’t need to have a deposit to buy a home
– It provides an alternative for the guarantor family member over a gifted deposit
– This could help someone in negative equity move or remortgage where they’d otherwise be a prisoner to their current mortgage
– There is risk that the guarantor may lose their deposit
– If house prices fall the borrower could end up with no equity or even in negative equity
The cons are to be expected, there are always risks with any type of mortgage. However, in the current times, young adults are struggling more and more to get these deposits together and most parents are not in a position to lend this kind of cash because this usually ends up as a gift rather than a loan. If you’re one of those parents you should have a chat with your child about this particular option. It’s also likely that other banks and building societies are going to hop on the band wagon so soon enough you’re going to have a lot more options for this mortgage available to you.
Please note that the statistics and information presented in this article are constantly changing. Each bank and building society will have different rules with regards to their ISAs and mortgages.