A three-in-one solution to the rising cost of buying a home
Having three generations under one roof can solve a host of problems, says Chiara Cavaglieri
Saturday 31 August 2013
A parent's work is never done, but the bank of mum and dad is run off its feet helping first-time buyer (FTB) children with their deposits as well as trying to support elderly parents with ever-increasing care costs. Increasing numbers of British families feeling the pinch are taking drastic action, moving to live together under one roof. But is multi-generational living such a bad thing?
Official figures show that there has been a 20 per cent increase in the number of 20-to-34-year-olds living with parents since 1997. An ageing population and spiralling residential care costs are taking their toll too, and families are sprucing up spare rooms and adding extensions to cater for elderly parents. More than 500,000 households now contain three generations, according to the Intergenerational Foundation think-tank, and that figure could reach 556,000 by 2019.
Mark Harris, the chief executive of the mortgage broker SPF Private Clients, says: “'It can make a lot of sense for three generations of the same family to live together under one roof. It kills many birds with one stone – it resolves the problem of getting on the housing ladder for children, while also providing care and companionship for grandparents.”
For young adults, getting on to the property market has never been so difficult. Many are consequently taking much longer to move out of the family home – while the so-called “Boomerang Generation” of recent graduates is returning home after university. Saving up for a deposit is an almost impossible task, with rents increasing across most of the country while wages have stood still and unemployment is still hitting hard at 7.8 per cent.
There are signs of recovery, with mortgage restrictions loosening and interest rates falling to historic lows, but there is still an acute housing shortage and property prices are climbing, making getting a foot on the ladder an even bigger challenge. Londoners are finding it particularly tough, with rent swallowing up nearly 40 per cent of their pay packets and houses costing on average more than six times their salary, according to Nationwide Building Society.
Many of the people who have been able to buy their first home in recent years have had a significant helping hand from their parents, or a large inheritance. For anyone who has to save their own money for a deposit, cutting costs is crucial – and saving hundreds of pounds a month in rent is one obvious solution.
Not every household is ready to welcome their adult offspring and in-laws with open arms, but there are potential benefits for the whole family.
Families that pool their resources can make savings by splitting costs – even in a larger house with high running costs, bills and council tax are usually reduced as you pay only one standard charge. It may be the perfect opportunity to do without one of the family cars, too. The biggest attraction for extended families is childcare savings, if grandparents are happy to help, and likewise there are more hands on deck to share the load of looking after elderly relatives.
If there isn't enough room, mortgage-free grandparents could offer up some of their equity to cover the cost of extending an existing home.
Carol Peett at the County Homesearch Company says: “Pooling resources often means you can get more space for your money, so where a family could only perhaps afford a terraced house with tiny garden on their own, with the injection of extra cash from the sale of the grandparents' house, they can afford a more spacious house with annexe and large garden for the children.” She says old farmhouses are a good bet for multi-generational living, as they usually have outbuildings that can be converted into additional living space.
Any decision of this importance deserves careful consideration, however, and extended families should consult a lawyer and get some tax advice before committing to living together. There are various financial implications: for example, mortgage lenders are wary of lending to people past retirement age so elderly grandparents may not be able to get on the mortgage even if they are contributing a significant amount of cash.
What happens when the children do eventually move out and the grandparents pass away or move into residential care cannot be ignored. Parents who borrow more money to extend their existing home, or buy a larger property, could be left alone in a house that is too big, with a mortgage to cover by themselves. Downsizing again is one option but this would mean forking out for the associated costs, and the stress of selling up and buying anew. Occupied granny flats could pose problems too – they have been exempt from council tax since 1997 but once empty, this relief may be removed and parents could be forced to pay two council tax bills (although this is set to be abolished).
Families need to decide carefully how they plan to own their shared home, as under a joint tenancy, if one owner dies, their share automatically passes to the other, whereas tenants in common can set out where their share goes in a will. It's important to get legal documentation drawn up stating who has contributed what from a financial perspective, so everyone knows where they stand.
David Smith at the independent financial adviser Bestinvest says: “Property ownership can be as tenants in common with ownership split to reflect the financial contribution made by children, grandparents etc. Inheritance tax (IHT) would be payable based on the deceased's proportionate value in the property. There are no capital gains tax issues on selling a principal private residence”.
Grandparents wanting to leave their share of the family home will have to bear in mind that IHT at 40 per cent is payable on assets above the current nil rate band of £325,000 and that includes property as well as money and investments.
20 December 2012 09:07 AM
20 December 2012 09:10 AM
Fee-free, expert mortgage advice:
- Find the right mortgage for you
- Latest best-buy deals
- Mortgage calculators
- 1 Malaysian cyclist could face disciplinary action after 'Save Gaza' gloves protest
- 2 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 3 Fifty Shades of Grey trailer provokes moral outrage from US parenting groups
- 4 McDonald’s removes chicken nuggets from the menu in Hong Kong amid major food scare
- 5 Students offered grants if they tweet pro-Israeli propaganda
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
iJobs Money & Business
£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...
£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...
£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...
Day In a Page
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar