Under 30s need family help to buy first home

UK house prices increased by 7.7%[i] in the year from November 2014 to 2015, to an average of £288,000[ii], while wages for the year ahead are expected to increase by just 2%[iii].

The driving force behind the hike in prices is believed to be the UK housing crisis[iv] – the lack of sufficient housing to meet the demand of the growing population.

As a result it is becoming increasingly difficult for first-time buyers to purchase a property. In fact, the price they paid for a home rose by an average of 7.4% in the year to November 2015, which is a huge hit to aspiring homeowners.

Closing the money gap

First-time buyers can obtain financial support through schemes such as help to buy loans, and most recently the new Help to Buy ISA. This government initiative gives each saver a top-up of £50 for every £200 they save, with the maximum top-up £3,000 per saver.

However, with a contribution limit of £200 per month it would take five years of consecutive monthly payments to gain the full £3,000 of additional contributions.

As a result of such financial constraint, many parents and grandparents have dug deep to help their children move forward and get a foot on the property ladder.

A whopping 55% of people aged 25 to 29 said they would not have been able to afford to buy property without financial help from relatives, and in 2014 an estimated £35.2bn worth of financial support was given to people in the UK from their parents and grandparents.

For many parents it isn’t simply a case of handing over a sizeable sum of money as not everyone has the extra cash to do so, but there are various ways to account for your child’s future needs.

Could pensions be a solution?

One option could be to use your pension. This doesn’t mean sacrificing your standard of living in retirement, rather it means making the most of the tax advantages that pensions have to offer. Such benefits include tax relief on contributions, tax-free growth and up to 25% tax-free cash from the age of 55.

Many people have released tax-free cash to clear their mortgage, tackle debt, make home improvements and support relatives. This option is not suitable for everyone, but it can be viable and effective for some, so it is important to seek financial advice

If you are a few years away from taking tax-free cash you can significantly boost the value of your pot by putting away a little bit extra into your pension each month, which in turn would increase the sum that you can withdraw tax free.

Aside from saving more money, another option to consider is how well your pension is performing. Many older schemes in particular are underperforming, and transferring to a new provider that can offer reduced fees and better growth potential could add £25,000 to the value of your pension!*

That’s £25,000 that could be used to help your child get their first property, and all you had to do was transfer to a new pension provider to get it.

These are just two of the ways that your pension could generate a sizeable chunk of money to help support your children, or to boost your retirement income. To find out more about the potential of your pension click on the image below.

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Tax treatment depends on your individual circumstances and may be subject to change in the future.

Based on a £50,000 sum at onset, growing at 6% per year before charges of 0.5% and 1.5% are applied.

The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new

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