20/03/18Homeowning: The naivety of youth
Buying a house.
It’s one of the biggest commitments your child will have to make when they grow up, but research from Halifax shows that many children and teens aged 11 to 21 are in the dark about how buying a house actually works.
What do they think?
Among all 11-21-year olds, there is a widespread belief that the average price of a first home in London is between £50,000 and £200,000. In fact, the average price of a first home in London is more than twice that, at £422,580.
There is a difference in beliefs among the age groups within the 11-21-year old bracket.
The youngest teens believe that:
- Mortgages are unlimited (20%)
- Their parents will pay for their house (33%)
The top three places to look for a property, according to this age group are:
- The internet (36%)
- A ‘house shop’ (33%)
- The bank (27%)
The priorities of 11-14-year olds upon moving into their new house are also interesting, with young teens most anxious to:
- Meet the neighbours 32%
- Get Wi-Fi 24%
- Buy a sofa 12%
- Throw a housewarming party 5%
For those in their mid-teens, expectations seem quite pessimistic; 23% of 15-17-year olds believe only rich people own their own homes, whilst 25% think that it will take 20 years of saving to gather enough for a deposit.
Among older teens and young adults, opinions seem to be more realistic, with home ownership of high importance to 59%. However, some aspects remain tinged with naivety, as:
- 27% expect to own property by the age of 25 (the average age of first time buyers is 31, rising to 32 in London)
- 10% define Stamp Duty as money used to buy stamps
- 23% of males and 5% of females think that they will need a deposit of £5,000 – £10,000 (the current average is £32,321)
- 31% of males and 18% of females are counting on inheritance to pay off their mortgage
How can you educate your children and teens?
Opening the bank of mum and dad (and grandparents) is increasingly necessary these days. But giving money away is not enough. It is also our responsibility to prepare them for the house-buying process so that they can tackle as much of it as possible on their own two feet.
These five tips should offer a good foundation for that education:
1. Work it out together
Start by communicating and finding out what your child wants in life. The type of lifestyle they aspire to have will largely dictate how they work toward it. Explain that things are unlikely to fall into place as soon as they enter the adult world and that they may have to compromise on some aspects along the way.
2. Look at the options
Using the time they have before buying a house is necessary, to look at some of the available options, there are several sources of help, for example; calculators and government schemes.
Use online calculators to determine how much mortgages cost and how much your child is likely to need to save to buy a house. Then investigate how much buying a home costs when you factor in the legal and moving costs.
Secondly, read up on Lifetime ISAs, Help to Buy schemes and Shared Ownership. These are all designed to get young adults onto the property ladder and could turn out to be the helping hand your child needs.
3. Create a plan
Now that you know where your child wants to be in the future and how much will be required to achieve that, you can work with them to create a plan. Consider how old they are and how much they will be able to afford as their income increases over time and work out a rough guide to get them homeowner ready in their 20s.
4. Check their credit and find ways to improve it
Of course, this is aimed at older teens and young adults, but it is never too early to learn about the impact of a credit score and what they can do to keep it healthy as they transition into adult life.
If your child is not old enough to have credit, you could show them your own credit profile and explain the different aspects and how they impact on the ability to access credit.
5. See a financial adviser together
If you already have a financial adviser, it may be worth taking you child along to an appointment so that they can see how important finances are in adult life. However, if your child is already over 18, maybe they would like to start seeing a financial adviser themselves?
Either way, why not give us a call to see how we can help?