Why rising London house prices have got parents buying homes for their school-age children
Every week, Morning Wire invites an industry professional to write about an emerging trend in the property market.
Over the past few years, given the exceptional price growth London has seen, the role of “the bank of mum and dad” in house sales has evolved considerably.
No longer restricted to parents helping their 20-something adult children finishing university and making that career move to London, we’ve seen increasing examples of parents looking to future-proof for their young children – sometimes children who’ve yet to start senior school.
The motivation is two fold. Firstly, these savvy parents are concerned about affordability in London. For example, in prime South West London values have increased by 34 per cent in the past five years.
Equally, Savills expects values could grow by around 18 per cent up to 2020, so by getting their children on the London property ladder now, they should also benefit from strong price growth.
How do you finance an investment purchase for your children? Many are in a position to do so because they have benefited significantly from recent price growth on the family home. We have seen instances where parents have extended their mortgage to release equity and purchase a ‘future-proofing’ property as a cash buyer in their children’s names.
Others have simply purchased an investment property with a Buy-to-Let mortgage, with the intention of passing this on to their young children once they grow up. But you’ll always need to consult a mortgage advisor and solicitor to establish how the process works and any legal or tax requirements you need to comply with.
Once a property has been purchased, in some instances it’s then rented out to contribute to or cover any mortgage payments, while occasionally the property will be used as a London base if they live outside of the city.
Some take more of an investment perspective and expect that, eventually, any property they buy now will be sold with any possible profit making up a deposit for an independent purchase further down the line. Other parents are simply using their good fortune now to secure a home for their children in the future.