Record year for family-financed property predicted in 2016

By Bea Patel, TLE Property Editor and Director of Shop for an Agent

Rising demand and higher property prices make it increasingly difficult for buyers to stand on their own two feet. Indications point to a worsening picture during the next 12 months, despite recent government moves to help first-time buyers, as outlined in the recent Comprehensive Spending Review.

JMW Solicitors, a Manchester law firm predict that in 2016, we’ll see a record number of family-funded house moves, as property buyers continue to rely on financial help from their families to progress on the housing ladder.

The analysis of national data from the English Housing Survey from the past six years reveal the percentage of people financing property moves with help from family and friends has risen every year since the peak of the UK financial crisis in 2008.

In 2008-09, when questioned on the source of finance for purchasing their current property, 5.3 per cent of respondents answered “a gift or loan from family or a friend”. This percentage continued to climb in each consecutive year, reaching 7 per cent in the most recent report of 2013-14.

Andrew Garvie, conveyancing specialist and partner at JMW, says: “We have every reason to believe this figure will continue to rise as a result of the increasingly high demand for property, at a time when prices are higher than ever before. In 2015, I’ve dealt with a record number of cases where buyers are using money from parents and other family members to fund their deposit, and I expect this will be surpassed in the next 12 months.

“While there are many benefits to this approach to purchasing property, it’s important for buyers and those providing the financial assistance to ensure adequate legal measures have been taken from the outset. The most common scenario, and the one accepted in the main by mortgage lenders, is that the funds are to be gifted by the family member rather than a debt be created. If the money is a loan however, this should be specified at the start, and simple trusts can be implemented to safeguard the funds so no confusion arises in the future – particularly if the buyer is cohabiting with an unmarried partner who could become entitled to a share in the property if they contribute to the mortgage repayments.”

JMW also expect a continued trend for foreign investment in UK properties following increasingly strong interest from overseas buyers in the past 12 months. Cash buyers from the Far East and Asia have been particularly active in areas such as London and Manchester, seeing British property as a safe-haven for investment. The only cautionary note is the new increased stamp duty and tax rates recently announced by the Chancellor on second homes, which may dampen demand when the measures come into force on 1st April 2016.

Jonathan Stephens, managing director of property consultancy Surrenden Invest shares his views about the stamp duty changes and its effect on London property investors. He said: “We have seen an immediate reaction from new and existing clients either looking to push their purchase through by next April, or source good quality stock to commit to purchasing before the revised stamp duty rates kick in.

“London property investors, especially, are going to be the hardest hit, and when one considers that good quality one bed apartments in areas considered undervalued can start from as much as £450,000, the new stamp duty revision will have an effect on overall returns. However long term, I firmly believe that investors from home and abroad will continue to view UK-based bricks and mortar as a safe bet, and residential property will remain the UK’s most profitable asset class long after 2016.

“My view is that there will be a rush for stock between now and next April, followed by a period of calm as investors accept the higher purchasing costs. I have spoken to a number of the largest developers and house builders in the country and they are already starting to offer ‘stamp duty discounts’, and we will see more deals like this offered with greater savings to make up for the higher stamp duty rates.”

Feature image credit: Surrenden Invest

Leave a Reply