Many first-time house buyers could be set to benefit from a rising trend of parents or grandparents gifting money to help them onto the property ladder.
As house prices continue to rise and become less affordable for first-time buyers, the Bank of Mum and Dad are increasingly stepping in to help – analysis from Savills suggests that £25 billion will be passed on as gifts to family members in the next three years.
This trend seems to be going in the same direction for grandparents gifting to their family members as well. In fact, Aviva report that 25% of grandparents have helped, or are going to help, grandchildren to become first-time buyers.
If you’re thinking of offering support, here are four things you should know.
1. Rising house prices make it harder than ever for first-time buyers
In recent years, first-time buyers have faced increasing challenges to getting onto the property ladder.
Nationwide data shows an 11% increase in the average UK house price since August 2021, with the average house price now £248,857. Sky News also revealed that August’s growth means UK homes have grown in price for 12 consecutive months.
And it’s not just rising house prices that are putting the pressure on first-time buyers.
The government’s “Help to Buy” scheme had provided 40,000 loans with a cumulative total of £2.9 billion in assistance, as Property Industry Eye reports. However, this support comes to an end in 2023 as the scheme ceases.
The cost of living crisis is another factor that could see more people using the Bank of Mum and Dad to assist in buying their first home.
As everyday items become more expensive, unexpected circumstances such as these could eat away at young people’s savings, leaving them unable to afford a deposit. Because of this, it’s likely that people who can lean on their family members for financial help will do so – keeping figures of first-time buyers using gifts from their parents high.
2. Parents are increasingly taking the burden for first-time buyers
One reason young people are getting a helping hand onto the property ladder could be down to more parents wanting to gift wealth to their children.
Aviva report that the number of people who said they would “probably or definitely” help their children to become first-time buyers has increased from 13% to 19% in the six years since 2016.
Aviva also say that people using their property wealth to help family members become first-time buyers has more than doubled. In 2016, 17% of people used wealth in their property to gift to their family members – this increased to 40% in 2022.
Many parents want to provide gifts when children benefit most from the money, rather than on death. As well as helping out a family member, this approach can also have potential Inheritance Tax (IHT) benefits, as these gifts may fall outside an individual’s estate if they survive more than seven years after making the gift.
3. Grandparents also want to help their family members on to the property ladder
It’s not just parents providing financial support. Aviva also report that 1 in 5 grandparents said they are “probably or definitely” going to help their grandchildren become first-time buyers. This has increased from 14% in 2016.
On top of this, they also revealed how grandparents are giving more than previous years to help their family member join the property ladder. The average amount given by grandparents is £31,398, which is a 25% increase from 2016.
4. You should consider how this affects your situation
Seeing this trend may inspire you to make a gift for a loved one to buy their first home. Just because this is becoming more popular does not mean it is always the best thing to do in your specific circumstances.
You should never rush into major decisions that could negatively affect your personal finances. We can help you decide what actions to take if you want to help a family member by making a gift or loan.
Here are some of the pros and cons of helping family become first-time buyers.
Pros
- See your family enjoy the money before you die
- Influence how the money is spent
- Potentially reduce your IHT bill if it’s gifted seven years before your death or falls within your annual exemption.
Cons
- Dying within seven years after giving could result in an IHT liability
- Your budget or pension for later life may be adversely affected by the gift
- You could negatively affect your own financial position and risk running out of money in later life
- Equity release to provide a gift has risks of its own.
Get in touch
If you want to help a loved one onto the property ladder, working with a financial planner can help. We can establish whether a proposed gift is affordable and whether you will still be able to achieve your long-term goals.
We can also help you to create an estate plan that mitigates a potential IHT liability.
Please contact us via email info@investmentsense.co.uk or call 0115 933 8433.
Please note
The Financial Conduct Authority does not regulate estate and tax planning.
Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits.
Your home maybe repossessed if you do not keep up repayments on your mortgage or other loans secured on it.
