GBP£4.21 billion first-time buyer bill
Half of parents expect to fund home purchases for children
First-time buyers will need to unearth more than £4.2 billion to get a foothold on the housing ladder this year.
Calculations from The Children’s Mutual reveal that the 214,800 first time buyers anticipated in 2008 will need to find on average £19,780 each to fund their purchase as the absence of 100 per cent mortgages hits home. And in many cases it could be their parents that will bear the brunt, warns the leading Child Trust Fund provider.
David White, Chief Executive of The Children’s Mutual said: “As the credit crunch bites, pressure is increasing on parents from all sides. The challenge faced by many parents of young children in particular is how to provide for their children now while simultaneously preparing for their futures. The sums of money needed to give their children a boost into adult life will require careful planning.
“Even allowing for recent reductions in house values, historic house price inflation, combined with lenders’ current abandonment of 100 per cent plus mortgages, means that it is all but impossible for first-time buyers to get a foot on the property ladder without a substantial deposit. Parents of younger children might look to the lessons of the present when preparing for the future and should consider saving for their children now.”
According to The Children’s Mutual, before the credit crunch, almost half of all parents questioned (48 per cent) already expected to bank roll their children’s first home. With 100 and 100 per cent plus mortgages effectively becoming extinct and those with a loan-to-value of 90-95 per cent getting rarer, the likelihood is that parents are increasingly going to have to find a larger and larger pot of money.
The Children’s Mutual predicts the reduction in high loan-to-value mortgages will leave 110,000 current potential first time buyers struggling to find a deposit and associated fees unless their parents step in. It is calling on parents of young children to consider saving now to help the next generation of home buyers.
Mr White said: “We are set for a seismic shift in the way the UK manages its money. With easy credit rapidly evaporating, we’re predicting a return to a ‘save now, buy later’ culture, which should be welcomed by most quarters. The Child Trust Fund was introduced to make it easier for parents to save for their children’s futures. We believe that a greater number of maturing Child Trust Fund accounts may well help deliver debt free university education which in turn could facilitate young people getting a foothold on the property ladder without sizeable parental pay outs. Conditions for first-time buyers are becoming increasingly tough at present, and the Child Trust Fund enables parents to give their children a head start towards one of life’s most important and expensive future purchases.”
Further research from The Children’s Mutual found that 40 per cent of today’s teens believe that buying a home in the future will be impossible without their parents stumping up the deposit and that today more than a fifth of men aged 25 to 29 are still living in their parents’ home.
The Children’s Mutual has created an online calculator to help parents of young children work out how much they may need to save for the future. For example, by investing the £250 Child Trust Fund government voucher given to each child registered for Child Benefit (with another £250 from government due at age seven) and adding a regular contribution of £20 a month, the account could pay out over £8,300 when the child turns 18. If you increase this to the maximum monthly contribution of £100 the potential payout could rise to a very healthy £37,100. £4.2 billion: according to the CML the average first time buyer deposit is £17,000 + approx £610 for conveyance + £1310 for stamp duty + £860mortgage arrangement fee = £19,780. £19,780 x 214,800 the number of expected first-time buyers in 2008.
 It is estimated that there will be 214,800 first time buyers in 2008. 52% of these are anticipated to purchase with no parental help = 110,000. (48% are expected to have parental help as previously stated).
 Trust Fund Generation
 This projection is based on a regular (monthly) direct debit (of £20 / £100) being invested for 18 years in a Stakeholder Child Trust Fund account, alongside the Government’s initial £250 voucher and another £250 at age 7, with yearly growth at the FSA mid-rate of 7% and charges of 1.5% of the account’s value each year. These figures are not guaranteed. Investment is linked to shares so its value can go down as well as up and the eventual lump sum could be more or less than indicated.