Interesting structures to help get kids on housing ladder?
Discussion
It's got to that time where two of my three kids are thinking about buying property. One in Oxford, one in London. They are earning about the average graduate salary. They have been frugal and saved, HTB ISAs, etc. However, they are a country mile away from ever being able to own a place.
I'm not keen just simply to write a cheque from the BOMAD. I would like something that incentivises them to scale the ladder slowly and pay it off over time. Perhaps a shared ownership scheme (but using my money rather than a housing association's).
I'd ideally like them to get the benefits available to FTBs.
I'm not looking to profit from this (though covering my cost of borrowing would be good). Also, to be clear I'm not looking to evade any taxes.
I don't really want to own any more property so I don't want it in my name. I'd like to be in a position that, if they make any awful decisions, I'd have some sort of blocking position that would protect the property. A trust perhaps?
Sorry to be a bit vague but I'm sure people on here have faced similar issues and come up with smart structures.
I'm not keen just simply to write a cheque from the BOMAD. I would like something that incentivises them to scale the ladder slowly and pay it off over time. Perhaps a shared ownership scheme (but using my money rather than a housing association's).
I'd ideally like them to get the benefits available to FTBs.
I'm not looking to profit from this (though covering my cost of borrowing would be good). Also, to be clear I'm not looking to evade any taxes.
I don't really want to own any more property so I don't want it in my name. I'd like to be in a position that, if they make any awful decisions, I'd have some sort of blocking position that would protect the property. A trust perhaps?
Sorry to be a bit vague but I'm sure people on here have faced similar issues and come up with smart structures.
What would qualify as an "awful decision"? Selling the house and spending money on coke and hookers? Or getting into a bad relationship and being taken for half (or more) the value of the house? Or something else?
Very valid concerns, I'll be in a similar position myself soon and have given it some thought. I've decided that I will probably just give them some money towards a property - part of inheritance tax planning anyway. I have come to the conclusion that the best thing I can do is hope to instil in them the correct values to make the correct life decisions, and hope for the best. I am not sure what more can be done without meddling in/controlling their lives.
Very valid concerns, I'll be in a similar position myself soon and have given it some thought. I've decided that I will probably just give them some money towards a property - part of inheritance tax planning anyway. I have come to the conclusion that the best thing I can do is hope to instil in them the correct values to make the correct life decisions, and hope for the best. I am not sure what more can be done without meddling in/controlling their lives.
Yes, I guess "coke and hookers" and "divorce" are up there. I'm wondering if I've missed any. I don't think either of my elder two would go off the rails. The younger one, not so much (though she'd probably be controlling the supply of coke and hookers if she went rogue).
I also totally get the not looking to control their lives and trust that you have instilled the correct attitude (I rather hope that I have done that). That is the counterpoint to my scheme.
But, I'm not sure just a big fat cheque is the message I want to send. I slightly want that sense of responsibility that striving for property ownership brings. Perhaps not the sleepless nights worrying about the mortgage that I remember at their age but a feeling that one needs to continue to strive if one wants to get on.
It also might make the conversation with my wife easier, who is not quite "f*ck 'em" but more "no-one helped us".
I also totally get the not looking to control their lives and trust that you have instilled the correct attitude (I rather hope that I have done that). That is the counterpoint to my scheme.
But, I'm not sure just a big fat cheque is the message I want to send. I slightly want that sense of responsibility that striving for property ownership brings. Perhaps not the sleepless nights worrying about the mortgage that I remember at their age but a feeling that one needs to continue to strive if one wants to get on.
It also might make the conversation with my wife easier, who is not quite "f*ck 'em" but more "no-one helped us".
I completely get the idea of not putting life on a plate. However I think their generation has life much harder now - my University degree was funded and I could afford to buy my first house (means get an 80% mortgage @ 8% interest...) in my 20's even living in the SE on a salary not much more than average (I had very low outgoings though).
Now the cost of buying or renting are higher, they may have student loans to payoff, and people have higher lifestyle expectations - mobile phones, wifi, more subscription services etc. Plus technology ages so much more quickly now, so I think that if I can help a bit to help them on their way, it could make a big difference to their quality of like.
It's a difficult balance to strike between wanting them to be able to enjoy life without engendering dependency.
Now the cost of buying or renting are higher, they may have student loans to payoff, and people have higher lifestyle expectations - mobile phones, wifi, more subscription services etc. Plus technology ages so much more quickly now, so I think that if I can help a bit to help them on their way, it could make a big difference to their quality of like.
It's a difficult balance to strike between wanting them to be able to enjoy life without engendering dependency.
We’re looking to buy and are also a country mile away from being in a position to do so.
The only way they’ll qualify for the schemes and be able to take your money is if you gift it to them. You may or may not have a ‘payment plan’ or whatever for them to either pay back the money or at least pay in time what they owe you.
Anything other than a gift from you to them will either mean more tax or disqualification from schemes.
If they’ve saved perhaps you could gift them the equivalent of what they’ve worked hard to save? Or perhaps pay their stamp duty for them?
The only way they’ll qualify for the schemes and be able to take your money is if you gift it to them. You may or may not have a ‘payment plan’ or whatever for them to either pay back the money or at least pay in time what they owe you.
Anything other than a gift from you to them will either mean more tax or disqualification from schemes.
If they’ve saved perhaps you could gift them the equivalent of what they’ve worked hard to save? Or perhaps pay their stamp duty for them?
Edited by ashleyman on Monday 13th November 19:20
I have a similar dilemma as my kids are uni age.
I expect I'll have to help them, especially when they settle down. I would rather not have any formal ownership due to the tax implications, but then you run the risk of losing a chunk of the cash if their relationship breaks down.
My preference would be to formally loan them the money and take a small interest payment. A bit like being a mortgage company.
I have no idea if that can be done, but it's something I want to look into.
I expect I'll have to help them, especially when they settle down. I would rather not have any formal ownership due to the tax implications, but then you run the risk of losing a chunk of the cash if their relationship breaks down.
My preference would be to formally loan them the money and take a small interest payment. A bit like being a mortgage company.
I have no idea if that can be done, but it's something I want to look into.
How about gifting them the deposit plus fees only. They could then get a mortgage of 4-5x salary for the remainder. You can calibrate the deposit amount based on their salaries and local house prices to put them in a property which is not overly luxurious whilst also not a shack.
They get the satisfaction of feeling like they are earning at least some of it plus the learning experience of having a mortgage. You have limited your capital at risk.
When / if their salaries go up or they accumulate savings, they can move up the ladder, taking your equity with them. If they are really self aware they may choose to pay you back.
They get the satisfaction of feeling like they are earning at least some of it plus the learning experience of having a mortgage. You have limited your capital at risk.
When / if their salaries go up or they accumulate savings, they can move up the ladder, taking your equity with them. If they are really self aware they may choose to pay you back.
Wacky Racer said:
Assuming you can afford it, lend them some (or all) of the money for the deposit, and put a second charge on the property on condition it will be repaid in full to you if and when the house is sold.
Will a mortgage co be happy with that? If I lent them the deposit wouldn't the mortgage company expect this to mitigate their risk?IF you are giving / lending them some of the money the mortgage lender will probably want clarification of the terms. Could have an impact on what they can borrow.
Sit down with a IFA and I'm sure they could suggest the best way forward.
Count yourself lucky - many banks here are insisting that FTBs have the loan guaranteed by someone else - inevitably the parents, sometimes the grandparents. There have been cases where the children and the parents have had their houses repossessed
Sit down with a IFA and I'm sure they could suggest the best way forward.
Count yourself lucky - many banks here are insisting that FTBs have the loan guaranteed by someone else - inevitably the parents, sometimes the grandparents. There have been cases where the children and the parents have had their houses repossessed
98elise said:
Wacky Racer said:
Assuming you can afford it, lend them some (or all) of the money for the deposit, and put a second charge on the property on condition it will be repaid in full to you if and when the house is sold.
Will a mortgage co be happy with that? If I lent them the deposit wouldn't the mortgage company expect this to mitigate their risk?RHVW said:
98elise said:
Wacky Racer said:
Assuming you can afford it, lend them some (or all) of the money for the deposit, and put a second charge on the property on condition it will be repaid in full to you if and when the house is sold.
Will a mortgage co be happy with that? If I lent them the deposit wouldn't the mortgage company expect this to mitigate their risk?My kids are still young, but I was thinking a few weeks ago about how I may help them in the future. I think that giving them good advice will be very important. Stuff like:
-Your first house is not your forever home, buy something with good investment potential
-Make sure you understand the maths of why buying a house is important and how it fits into the bigger picture of personal finance (I work in Bristol and people in the office struggle to buy, but they refuse to look at cheaper areas that are not as 'trendy' so end up paying high rent and eating out in the places they wish they owned a house.
-Buy something you can rent out spare rooms to tenants (near a hospital etc) and let them pay your mortgage
-Give them money, but only to match, or as a percentage of what they save. This will push them in the right direction.
-Get them to physically write out a plan over a set time period about how they will buy, and work back to how it will be achieved.
-I will let kids live with me for say 5 years after uni, then they are gone. They need to use these 5 years wisely!
Reading it back, I sound a little controlling. But as good as my parents are, i wish they had directed me a little more. Although I suppose they led by example, and i havent messed up too bad!
-Your first house is not your forever home, buy something with good investment potential
-Make sure you understand the maths of why buying a house is important and how it fits into the bigger picture of personal finance (I work in Bristol and people in the office struggle to buy, but they refuse to look at cheaper areas that are not as 'trendy' so end up paying high rent and eating out in the places they wish they owned a house.
-Buy something you can rent out spare rooms to tenants (near a hospital etc) and let them pay your mortgage
-Give them money, but only to match, or as a percentage of what they save. This will push them in the right direction.
-Get them to physically write out a plan over a set time period about how they will buy, and work back to how it will be achieved.
-I will let kids live with me for say 5 years after uni, then they are gone. They need to use these 5 years wisely!
Reading it back, I sound a little controlling. But as good as my parents are, i wish they had directed me a little more. Although I suppose they led by example, and i havent messed up too bad!
Edited by covmutley on Tuesday 14th November 10:24
AZ,
I am in a similar position of being able to deal with the matter, but have a concern about whether there might be a price collapse, and would then regret making the purchase near the peak of a bubble.
Do we think property is now considerably overpriced ?
Always difficult to know, but does this provide a clue.
It is of course regional, but many graduates are drawn to the south east for employment.
30 year old, qualified in one of the main professions, higher rate tax payer, six figure house deposit available.
However, only able to buy a terraced 'rabbit hutch, in an outer London suburb.
Most first time buyers are not in such a fortunate financial position.
Does this example tell us anything about the housing market ?
Edited by Jon39 on Tuesday 14th November 12:02
Jon39 said:
AZ,
I am in a similar position of being able to deal with the matter, but have a concern about whether there might be a price collapse, and would then regret making the purchase near the peak of a bubble.
Do we think property is now considerably overpriced ?
Always difficult to know, but does this provide a clue.
It is of course regional, but many graduates are drawn to the south east for employment.
30 year old, qualified in one of the main professions, higher rate tax payer, six figure house deposit available.
However, only able to buy a terraced 'rabbit hutch, in an outer London suburb.
Most first time buyers are not in such a fortunate financial position.
Does this example tell us anything about the housing market ?
I think it does in that, we have people getting help or not getting on at all in these areas, we have people taking on and being allow to take on high levels of debt where the old advice of will you be able to afford your repayments should the interest rate double/triple etc being (having to be) ignored to take the plunge. It's always panned out in the long run for people in the past and so the assumption is it will always, people need to live somewhere, these crashes are always on a tiny percentage of the cyclical timeline compared to the decade + of steady-high growth periods. I am in a similar position of being able to deal with the matter, but have a concern about whether there might be a price collapse, and would then regret making the purchase near the peak of a bubble.
Do we think property is now considerably overpriced ?
Always difficult to know, but does this provide a clue.
It is of course regional, but many graduates are drawn to the south east for employment.
30 year old, qualified in one of the main professions, higher rate tax payer, six figure house deposit available.
However, only able to buy a terraced 'rabbit hutch, in an outer London suburb.
Most first time buyers are not in such a fortunate financial position.
Does this example tell us anything about the housing market ?
Edited by Jon39 on Tuesday 14th November 12:02
Basically everything that's trawled out over and over in the house type threads, what triggers the/a crash, market sentiment (ie your view becomes prevalent and appears more likely to everyone) credit availability, affordability (increased interest rates), creating panic/distressed selling. Those in power either economically or politically usually have a vested interest in avoiding being the ones around when the music stops so it drags on for as long as possible. So we have low wage inflation, but affordability helped by longer mortgage terms and low interest rates, but can all these things continue? can house prices simply level out and stagnate, it doesn't normally happen....
Scootersp said:
I think it does in that, we have people getting help or not getting on at all in these areas, we have people taking on and being allow to take on high levels of debt where the old advice of will you be able to afford your repayments should the interest rate double/triple etc being (having to be) ignored to take the plunge.
Banks stress test at 7% with the maximum 'doomsday' scenario being a rise to 8%.AstonZagato said:
It's got to that time where two of my three kids are thinking about buying property. One in Oxford, one in London. They are earning about the average graduate salary. They have been frugal and saved, HTB ISAs, etc. However, they are a country mile away from ever being able to own a place.
I'm not keen just simply to write a cheque from the BOMAD. I would like something that incentivises them to scale the ladder slowly and pay it off over time. Perhaps a shared ownership scheme (but using my money rather than a housing association's).
I'd ideally like them to get the benefits available to FTBs.
I'm not looking to profit from this (though covering my cost of borrowing would be good). Also, to be clear I'm not looking to evade any taxes.
I don't really want to own any more property so I don't want it in my name. I'd like to be in a position that, if they make any awful decisions, I'd have some sort of blocking position that would protect the property. A trust perhaps?
Sorry to be a bit vague but I'm sure people on here have faced similar issues and come up with smart structures.
Have they actually asked you for help? And if they have what setup did they have in mind?I'm not keen just simply to write a cheque from the BOMAD. I would like something that incentivises them to scale the ladder slowly and pay it off over time. Perhaps a shared ownership scheme (but using my money rather than a housing association's).
I'd ideally like them to get the benefits available to FTBs.
I'm not looking to profit from this (though covering my cost of borrowing would be good). Also, to be clear I'm not looking to evade any taxes.
I don't really want to own any more property so I don't want it in my name. I'd like to be in a position that, if they make any awful decisions, I'd have some sort of blocking position that would protect the property. A trust perhaps?
Sorry to be a bit vague but I'm sure people on here have faced similar issues and come up with smart structures.
If a mtge lender won't lend them enough to buy, bridging the gap with even more debt courtesy of the BoMD will be pushing then into very serious debt indeed unless it is structured to protect them ... e.g., like a student loan, make repayment terms contingent on salary and perhaps link the outstanding debt to any fall in mark-to-market of the property to protect them from falling house prices.
In reality I'd not want to become their creditor, so I'd consider pledging some capital towards a future purchase and perhaps paying their rent for a while to help them save.
In reality I'd not want to become their creditor, so I'd consider pledging some capital towards a future purchase and perhaps paying their rent for a while to help them save.
Gassing Station | Finance | Top of Page | What's New | My Stuff