How to help the not-so-young leave your nest
Parents eager to ease out adult returners do have options. By Chiara Cavaglieri and Julian Knight
You rear them, send them to school and then finally pack them off to university to strike out on their own. That's how it used to be, but not any more. It seems that financial pressures are forcing more and more twenty and even thirtysomethings to return home to their parents, sometimes to stay for good.
The Office for National Statistics revealed last week that there are three million adults between the ages of 20 and 34 living with their parents, 20 per cent up on 1997. This increase could be down to a number of factors, but it does coincide with a 40 per cent hike in the average house price between 2002 and 2011, as well as an increasing ratio of house prices to first-time-buyer incomes. If young adults are facing increasing university fees with earnings that aren't keeping up with house prices or rents it's no surprise that they are finding it difficult to leave home.
Luckily, there are several things parents and their offspring can do to make the transition much easier. The bank of mum and dad is already helping many first-time buyers put down hefty deposits and some are also acting as the guarantor to appease nervous lenders.
"The standard guarantor approach can help where the child can't quite reach the level of borrowing required at the moment and the parent guarantees the mortgage. The Mortgage Works offers specific guarantor mortgage deals including a two-year fixed rate at 5.59 per cent to 85 per cent loan-to-value with a £395 fee," says David Hollingworth from broker London & Country.
Other guarantees take additional security on your parents' assets. For example Aldermore can lend up to 100 per cent of the purchase price but will take a charge on parental equity on any borrowing above 75 per cent LTV. They offer two and three-year fixed rates at 5.98 per cent with a fee of £1,298. National Counties BS and Bath BS also offer similarly structured deals and the Lloyds lend-a-hand scheme is available to 95 per cent LTV with parents locking away savings as additional security.
Otherwise, you can scan the market for the best high loan-to-value deals around.
There aren't too many to choose from but Clydesdale and Yorkshire building society have just cut the rate on its 95 per cent LTV mortgage to 5.99 per cent fixed for three years and have scrapped the £599 product fee. If you could raise a 10 per cent deposit, the rate falls to 4.99 per cent.
There are also Government-backed initiatives, such as NewBuy and shared equity scheme Firstbuy, as well as deals that lenders are pushing such as Nationwide's Save to Buy, which asks customers to save towards a mortgage deposit for between six months and three years to then be able to apply for a 5 per cent deposit loan.
If you're willing to share, as with renting, the most cost-effective way to buy a home is to club together with friends. According to new research from FindaProperty.com the magic number here is three with average mortgage repayments on a three bedroom home spread equally standing at £334 per person. In comparison, two individuals would be coughing up £375 for a two-bedroom house and four would pay out £424 in monthly repayments.
It also means you won't have to bear the full burden of other costs such as conveyancing, utilities and council tax alone. Sharetobuy.com offers a joint mortgage service for friends or family who want to buy together. As "tenants in common", rather than "joint tenants", each party can sell their share but be warned you are still all responsible for the mortgage and will be held liable if anyone defaults on their payment.
Use this time to dedicate yourself to cutting back and disciplined saving which will help you build up enough money to make it on your own sooner rather than later.
"If mum and dad are prepared to let you stay rent-free you have to apply yourself. Bite the bullet and remember you're doing this for a purpose, and that is to save up. It's no good going out every night spending a fortune. You've got to have a disciplined approach," says Harry Katz from independent financial adviser Norwest Consultants.
Equities are only suitable for long-term investments so concentrate, instead, on saving into a cash ISA to keep your money away from the taxman. You can put £5,640 away each year and two-year fixes pay up to 4 per cent. Or stick with an easy access account paying up to 3.35 per cent.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
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