Should you be helping your child buy a house?

Please note: this research was conducted in December 2021 and was accurate at the time of writing.

Houses are expensive. Like, really expensive.

In fact, the average UK house price stood at £285,000 in March 2023.^[1] Now, if you compare that to the average UK salary, which is just shy of £34,000,^[2] then you’d need a mortgage of more than 8x your salary to even get on the property ladder.

Unfortunately, most providers simply aren’t offering mortgages to this level which means that buying a house on your own is often not a possibility.

There are (as always) loads of caveats with the data above. For a start, house prices vary massively depending on the type of house you want to buy, where it is, the condition it is in, how old it is, and so much more. Therefore, the average house price needs to be treated as just that – an average.

And yes, you could always buy a cheaper house, but annoyingly for some, a lot of that will be governed by where you want to live. After all, not everyone wants to uproot their entire lives just to get on the property ladder.  

How many parents actually save for their children?

If you have children, then you’ve probably thought about them moving out at some point (especially if they’re at that eat-you-out-of-house-and-home stage already), but have you actually thought about the practicality of them doing so?  If you have, then you may be ahead of the curve.

Let’s face it. The cost of everything is rising. Houses, energy, food – it’s all going up.

So, the results of our research into how parents are saving for their children, which we conducted at the end of 2021, came as no surprise. At the time, nearly a quarter (22.8%) of parents in the UK said they felt like they simply didn’t have enough income to save for their children. However, that hadn't stopped the 40% of parents who were planning on saving £5,000 - £15,000 for their children by the time they reach 21.^[3]

But how much does the Bank of Mum and Dad help youngsters to buy a house? And should you be helping your children to buy their first home if you can?

Should I help my child buy their first home?

If you’re not entirely sure if you should be helping your child buy their first home, then it may be worth looking at a few pros and cons to try and have a more balanced idea. After all, just because it seems like everyone else is doing it, that doesn’t mean you need to as well.

So, what are the pros?

• It can help your child get on the property ladder much faster
• House prices have risen significantly in recent years, so the sooner they can get on the ladder, the more affordable their mortgage might be
• If you help pay towards a deposit now rather than leave your children an inheritance, you’ll still be around to see them enjoy it.

All that makes sense, right? However, there are some cons to consider as well:

• Saving up enough for a deposit can be hard, so try to be realistic about what you can and can’t afford.
• If you choose to ‘gift’ a deposit, then you’ll need to have that cash ready and available for when they want to buy.
• If you have a couple of kids, and you want to be fair, this approach can be much more expensive - and if there’s a large age gap, then the price of houses could change significantly by the time the younger one is thinking of buying.

There’s a lot to think about, although it’s worth mentioning that our survey found that 43.9% of parents were planning on helping pay towards their child’s first property. That’s less than half of all the parents we asked, so although it’s common, you shouldn’t feel pressured into it and feel as though it’s something you need to do.

How do I help my child buy their first home?

One of the easiest ways you could help your child buy their first home is to chip in for the deposit. This is significantly more affordable for most people than trying to buy the house outright and it’s less risky than looking to buy the house with a mortgage that you take on.

So, as a parent, how much of a deposit do you want to help them with? As you can imagine, the answers vary widely, with differences across regions, so here’s a quick rundown of what other parents are doing to give you an idea.

Of the 2,000 parents we asked about their saving plans for their children, 878 of them said they’d help them with a deposit – with the majority (54%) aiming to give their children between £10,000 and £30,000, and 24.1% of parents looking to give more than £30,000. In fact, 1 in 17 would ideally like to give their children between £50,000 and £70,000 for their first home!

Before you start looking at your children and thinking “where’s all this money coming from?", around 22% of parents have said they’d chip in less than £10,000 for their child’s first home.

How does this differ by region?

As you can imagine, areas around the UK change massively when it comes to house prices, salaries, and the general cost of living, so the help parents give their children when they’re buying a house is often very different too.

Our survey found that parents living in London are more likely to contribute to their child’s first home than anywhere else in the UK, with 67% of parents saying they’re planning to help.

Being a Welsh company, we know just how clingy Welsh parents can be. They are always wanting a cwtch (that's a 'cuddle' to everyone else) and if you move to the next town over then you’re practically falling off the face of the earth as we know it (it’s a 10-minute drive mum, calm down). Maybe that’s why Welsh parents are the least likely to support their child buying a house? That being said, over half (51%) of Welsh parents still plan on helping their kids buy their first home.

Is this a generational thing?

Although houses are now more expensive than they’ve ever been, they have been steadily rising for decades:

Source: https://landregistry.data.gov.uk/

Even with inflation factored in, the average house in 1970 would have cost £51,172.85 in today’s money – only slightly less than the average house price 30 years later.^[4] With these significant increases, it’s no surprise to hear that 30% of parents we surveyed had also received financial support from their families to buy their first home.

Will house prices continue to increase?

There’s no sure way of knowing. The Covid pandemic caused chaos in the property market, seeing house prices across the country rising rapidly, but this demand has already started to cool off slightly. There are many possibilities for what could happen over the next decade: house prices could rise slowly, we could see a house market crash, or house prices could continue to grow rapidly.

We can’t tell what the future holds. However, historically, the price has climbed every decade since the 1970s. So, if you have the means, it could be worth thinking about saving for your child to help them get on the property ladder.

Start saving for my child’s first house

If your child is still young, then the good news is that you have plenty of time to start saving for their future. One way could be to open a Junior Stocks and Shares ISA to give your money more potential to grow over the years through investing. You could even set up a regular Direct Debit to their investment account as a sort of ‘pocket money’ that may be a lot more useful when they’re older (we’ve actually covered this in a different blog: how much pocket money people give their children).

You could ask your friends and family to chip in. There’s a great saying that goes, “it takes a village to raise a child.” And while asking your entire village to help out may seem a bit much, getting your friends and family to pay into a Junior ISA for your little one doesn’t need to be difficult (or awkward). With Wealthify, you can easily invite them to contribute to your child’s Plan and they can pay in whenever they want, and however much they want, up to the £9,000 tax-free allowance on Junior ISAs.

Don’t worry if your children are older, it’s never too late to lend a hand. If they’ve already started work, then why not educate them on the benefits of saving and investing? Not only does this help them to help themselves, but it instils good life skills that they’ll probably need once they have their own house. Of course, if you can still help them out financially, then that could go a long way in getting them on the property ladder – this could be by saving for them separately, letting them live at home rent-free, or even giving them an early inheritance to help them out financially at an earlier stage in life.

Remember, though, there’s no hard and fast rule here. The best way to save for your child is to find what works well for you, and that will change from person to person. Good luck!

References

1. https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/march2023
2. https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/june2023
3. Full data from our Saving for Children Survey: https://www.wealthify.com/blog/saving-for-children
4. https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator

Please remember that past performance is not a reliable indicator of your future results.

Please remember the value of your investments can go down as well as up, and your child could get back less than what was invested for them.