Helping Your Child onto the Property Ladder

Would You Re-mortgage Your Helston, Porthleven or Lizard Peninsula Home to Help Your Child Onto the Property Ladder?

How far would you go to help your child get on in the world?

Many local parents move area to ensure that their child gets into the best primary school or fund their university costs. A number of you reading this have even helped your children with the deposit for their first home from savings.

However, we have come across many people in the TR13 and TR12 areas in their 50’s and 60’s who have good jobs and incomes yet don’t have the savings to give to their children to help them buy their first home. It doesn’t help when you consider…

The average value of a home in the South of Cornwall has risen by 16.9% in the last 5 years, from £291,413 to £340,668.

We are therefore seeing increasing numbers of parents who are willing to re-mortgage their own homes or start a new mortgage (when they own their home outright) - to get their children onto the local property ladder.

So, whilst the Government is trying to turn Britain’s 20 and 30 somethings from ‘Generation Rent’ into ‘Generation Buy’, the ‘Bank of Mum and Dad’ are mortgaging their retirement to pay for it all. Yet it need not be cost prohibitive borrowing the deposit as you still have access to interest only mortgages.

With an interest only mortgage, your monthly mortgage payment covers only the interest on your mortgage, not any of the original capital borrowed. This means your mortgage payments will be lower than on a repayment mortgage, remembering though at the end of the term you will still owe the original amount you borrowed from the mortgage provider.

1 in 14 new mortgages are interest only and 1 in 5.5 existing mortgages are interest only mortgages, they are very popular.

Anyway, many homeowners in the TR13 and TR12 areas might be worried about having that level of debt in their golden years. However, many plan to pay off the mortgage when they downsize as they get into their 60’s and 70’s.

We talk to many homeowners in the local area who are asset rich but cash poor but desire to help their children onto the property ladder.  Their growing attitude appears to be that their children will inherit their property when they pass away, so it seems more practical to give them that money now to work harder for them earlier in their life when they need it to buy their first home.

Can you get a mortgage, even if you are retired?

A lot is dependent upon your age and financial position. The mortgage companies will see if you have adequate funds for your retirement and emergencies, plus leaving enough equity in the property to enable you to downsize in the future. Like all things in life, we would recommend that you take advice from a qualified mortgage arranger.

So, that then begs the question, is there enough equity in the houses in your local area to borrow against?

In the late 1980s and again in the early 2000s, many Brits saw their homes as a cash machine. Numerous homeowners were re-mortgaging at the end of their preliminary term (usually after the initial 2, 3 or 5 years) but when doing so they increased their mortgage to enable them to buy a nice car, redecorate or a fancy holiday. Yet, by doing this, it created negative equity in the early 1990s and stopped many homeowners moving home between 2009 and 2013 because of their lack of equity.

Therefore, we have to ask, have we borrowed too much this time around?

Looking around South Cornwall and the specific postcodes of TR12 and TR13 combined...

In 2016, the average Helston, Porthleven and Lizard Peninsula homeowner had a mortgage of £96,478 and today it is £103,473, a rise of £6,995.

Looking at these numbers, one might think we are again over-extending ourselves, yet as regular readers of our blog about the local property market will know – we like to drill down and look at all the figures.

Initially, we were worried about these stats, until taking into consideration the equity people have amassed over the same 5 years.

In 2016, the average equity held in a homeowner’s property (whilst still having a mortgage) was £194,935, yet today that stands at £237,195, a rise of £42,260.

Even though mortgages have increased, our homeowner’s equity has risen even more, meaning as we stand today, mortgaged and owned-outright properties, there is…

£3,824,461,773 of equity held in all Helston, Porthleven and Lizard Peninsula homes.

Whilst the total value of mortgages has increased slightly since 2016, as a percentage, this has gone down meaning homeowners and landlords have increased their equity in the last five years.

It can quite clearly be seen that the financial insecurity sparked by the Credit Crunch crisis of 2008/9 has created a generation of homeowners and landlords who are savers and improvers rather than movers and excessive borrowers, using excess cash to invest in their property and pay down debt or to excessively borrow on their equity growth.

Only 9.66% of the total value of a local property is borrowed money with a mortgage.

This is great news for every Helston, Porthleven and Lizard Peninsula homeowner and landlord because irrespective of whether the ‘Post Lockdown Bounce’ is short or long-lived, it shows this property market is in a better state to ride out any storm that it might encounter than ever before because less people will be in negative equity or have prohibitively high mortgages.

Before we finish, we fully appreciate that money and inheritance is a sensitive subject for many families.

Our message to all parents is that, just because your children aren’t talking about the subject, it doesn’t mean it’s not on their mind.

The lead has to come from you as a parent to ensure that the wealth held in your bricks and mortar can be used to your family’s advantage when they need it most.

If you do, your children will thank you for it and they may even do the same for their children, then they will do the same for their children’s children ... creating a legacy that will go on for generations.