One of the key worries for many parents today is where their children will live when they fly the nest, and how they might pay for it.
Although there appears to be a general consensus that the housing market is currently stagnant, years of price growth and the stricter affordability criteria that have come since 2008 mean the chances of getting a foot on the home ownership ladder have faded for children who, had they been born a generation earlier, might reasonably have expected to buy their own home at a relatively early age.
According to recent figures released by the Halifax the average age of a first-time buyer in London is now 34, which is well above the national average of 27, and a whopping 11 years older than the average 23-year-old first-time buyer in 1960, according to separate research commissioned by Keepmoat Homes.
The obvious answer, of course, is to rent – which is the solution for many people already in an era already being termed Generation Rent. In fact, a survey commissioned by Price Waterhouse Coopers in 2016 forecast that by 2025, 60 per cent of all Londoners would be living in rented accommodation.
That’s all well and good, but significant numbers of people may well view the rental market as dead money, with no return on the monthly investment in the cost of accommodation. Added to this is the fact that in some parts of the country – notably the south – the ongoing costs of renting can often exceed those of home ownership.
So, could the buy-to-let (BTL) market hold the key to the housing futures of some Millennials?
Just as the Bank of Mum and Dad is an option for those that can afford to take advantage of some mortgage products that enable parents to help their children secure their first home, so BTL may also be an option for parents who want to see their children into independent living without the pressure of having to make mortgage payments.
Buying a property and then renting it out at a cost which is possibly below what you might expect to pay on the open market is a smart idea- but it comes with a some mortgage and tax complexities.
Here are some things to think about before you go down the route of a family buy-to-let.
First, you won’t get a standard BTL mortgage. This, in part, is because the explicit intention is to rent it out at less than market value – which in the eyes of the lender makes it a riskier investment for the borrower, who may be facing the prospect of having to underwrite a shortfall between their mortgage repayments and their rental income. This is especially pertinent where the borrower only has a small deposit.
That means you’re likely to be looking at what is known as a regulated buy-to-let mortgage, which may well require a higher deposit.
There are variations on these two options and a professional mortgage broker like Oportfolio can advise you on the best option for your needs.
In terms of tax, you’ll need to consider factors like a stamp duty surcharge of 3%, possible implications of Capital Gains and Inheritance Tax and you may not get the same benefits of deductible expenses where a family member paying lower-than-market value is your tenant.
Finally, regardless of the fact the person living in your investment property is your son or daughter (or perhaps an older relative you’re supporting), you’ll still be a landlord in the eyes of the law and will need to meet the responsibilities that brings.
That means having the right insurance, putting a tenancy agreement in place and ensuring the property is maintained in accordance with current legislation.
All in all, there’s a lot to consider before going down the BTL route as a solution for your son or daughter. But with the right help and support, it’s a consideration worth looking at with us.
To speak to a member of our friendly team and find out more about how we can help you, get in touch today
To find out more about our friendly and professional mortgage service, fees and what we can do to help make sure you’re not paying over the odds for your mortgage, why not visit www.oportfolio.co.uk or give us a call on 020 7371 5063.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.