Finance

Generation Rent - how will our children climb on the property ladder?

Youssef Darwich

People in the UK are renting more than ever before, and for “generation rent” many see no possible means of getting on the property ladder in the future whether this be short or longer term..

The number of people in private rented accommodation has nearly doubled in England over the last twenty years from 10% in 2000 to 18.7% in 2020. (Source: Statista Feb 2021)

Both the stamp duty holiday and the home working trend started during the pandemic have fuelled the latest property price boom, with the cost of the average home increasing 10.9% to £242,832 in only 12 months, according to Nationwide. (Source: Nationwide June 2021) As many workers continue to work from home this has meant demand for properties outside of London has skyrocketed. So it’s fair to say that the pandemic has exacerbated the issues around affordable housing and that the market is tougher than ever for first time buyers.

A pandemic is a rare event and so it is impossible to predict how things will develop,  however Savills see the rental trend increasing and predicts that the rental market will grow  by 17% by 2025. (Source: Savills Mainstream Rental Forecasts Feb 2021)

With all of this to consider, planning for your child’s future two decades from now and saving for your children to get on the property ladder may feel simply impossible.

However- the tough landscape means that it’s more important than ever before for parents to start saving early. Providing the right fund for your children could mean they don't have to contribute to these statistics and instead have the opportunity to step up on that narrowing property ladder easier.

As a (very) long-term goal, saving up for their first home down-payment means you can take full advantage of the investment products available in today's market.

 

We take a look at some of your options:

Junior stocks & shares ISA (in your child’s name)
  • £9k annual limit on investment for 2021-2022 tax year
  • exempt from income, dividend and capital gains tax
  • contributions from non parents allowed and untaxed

Find out more about Junior ISAs here.

Stocks & shares ISA (in your name)
  • £20k annual limit on investment
  • exempt from income, dividend and capital gains tax
  • self-discipline needed to avoid withdrawing money for personal use
Personal general investment account (GIA)
  • no annual limit
  • capital gains tax annual allowance set at  £12.3k for the tax year 2021-2022
  • any profit over £12.3k is taxed
  • self-discipline needed to avoid withdrawing money for personal use
A bare trust
  • a junior investment account within a bare trust
  • no annual limit
  • places the funds in the child’s name meaning you can’t use them for your own benefit
  • uses the child’s CGT allowance — decreasing the chances of you having to pay tax.
  • any contributions from non parents (e.g. grandparents, godparents, aunts & uncles, etc.) are also exempt from income tax.

Find out more about bare trusts here.

So there you have some of the options to get you started on the road to home ownership for your young one, although remember that when investing, your capital is at risk. At Hapi we aim to demystify savings and investments for parents and help you make the right decisions for your goals. You can read our full investment guide to savings for your child’s future here.

Helping your child to buy their own home looks more daunting than ever. Still not sure whether you should even start? Consider these points:

  • Starting small and starting early for your child has never been more important.  Simply cancelling online subscriptions and takeaway coffee and putting the weekly savings into your son or daughter’s JISA will add up. Saving a little is better than saving nothing at all!
  • Lockdown has meant that many of us have managed to save money we would have spent on clothes, holidays and going out. As we lift restrictions, consider moving the money saved into your child’s JISA or bare trust- and don’t be shy about asking grandparents to consider doing the same!
  • Ask friends and family to switch from physical gifts for your child to making a contribution to your child's Hapi account instead at birthdays, Christmas or other celebrations. Even small sums could result in decent savings towards a deposit for a house after eighteen years. A gift to last a lifetime and not in landfill!
  • Every large journey starts with a small step. Remember that saving just a small amount is better than saving nothing. Also have regular discussions with your partner about your child’s future finances. Commit to regular money  “date nights”. This is designated time where you discuss your finances and your child’s financial future with your partner. Having regular conversations and making concrete plans will  help you to focus on saving and investing money, protecting your family and will help to set your children up for financial success. Use our free guides to educate yourself or reach out to us if you have any questions. 

 

Do you want to stay on top of parenthood finance? Join our community and we'll keep you up to date! If you'd like to speak to us about how Hapi could help you save, drop us a line at community@hapiplan.com.

 

Disclaimer:

This article should not be read as personal financial advice and is written solely to provide guidance to the reader. The exact tax treatment depends on your individual circumstances and may be subject to changes in the future. When investing, your capital is at risk and the value of your investment may go up as well as down.




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