How far would you go to help your child get on in the world?
Many Edinburgh parents move area to ensure their child gets into the best primary school or fund their university costs. Many of you reading this have even helped your children with the deposit for their first home from savings.
However, I have come across many Edinburgh people in their 50’s and 60’s who have good jobs and incomes, yet don’t have the savings to give to their children to help them buy their first home. It doesn’t help when you consider…
the average value of an Edinburgh home has risen by 24.8% in the last 5 years, from £265,906 to £331,849.
I am therefore seeing increasing numbers of parents who are willing to re-mortgage their own Edinburgh home or start a new mortgage (when they own their Edinburgh home outright) — to get their children onto the Edinburgh property ladder.
So, whilst the Government is trying to turn Britain’s 20 and 30 somethings from ‘Generation Rent’ into ‘Generation Buy’, the Bank of Mum and Dad are mortgaging their retirement to pay for it all. Yet it need not be cost prohibitive borrowing the deposit as you still have access to interest only mortgages.
With an interest only mortgage, your monthly mortgage payment covers only the interest on your mortgage, not any of the original capital borrowed. This means your mortgage payments will be lower than on a repayment mortgage, remembering though at the end of the term you will still owe the original amount you borrowed from the mortgage provider.
1 in 14 new mortgages are interest only and 1 in 5.5 existing mortgages are interest only mortgages, they are very popular.
Anyway, many Edinburgh homeowners might be worried about having that level of debt in their golden years. However, many plan to pay off the mortgage when they downsize as they get into their 60’s and 70’s.
I talk to many Edinburgh homeowners, who are asset rich but cash poor and desire to help their children onto the Edinburgh property ladder. Their attitude is their children will inherit their property when they pass away, so it seems practical to give them that money to work harder for them earlier in their life when they need it to buy their first home.
Can you get a mortgage, even if you are retired?
A lot is dependent upon your age and financial position. The mortgage companies will see if you have adequate funds for your retirement and emergencies plus leaving enough equity in the property to enable you to downsize in the future. Like all things, you need to take advice from a qualified mortgage arranger.
So, that then begs the question, is there enough equity in Edinburgh homes to borrow against?
In the late 1980s and again in the early 2000s, many Brits saw their homes as a cash machine. Numerous homeowners re-mortgaging at the end of their mortgage’s preliminary term (usually after the initial 2, 3 or 5 years), but when doing so increased their mortgage to enable them to buy a nice car or fancy holiday. Yet, by increasing the borrowing, it created negative equity in the early 1990s and stopped many homeowners moving home between 2009 and 2013 because of their lack of equity.
Therefore, I have to ask, have we borrowed too much this time round?
Looking at Edinburgh and the specific postcodes EH1 – EH13 and EH15 – EH17 combined…
In 2016, the average Edinburgh homeowner had a mortgage of £110,060 and today it is £122,889, a rise of £12,829.
Looking at these numbers, one might think we are again over-extending ourselves, yet as regular readers of my blog about the Edinburgh property market will know – I like to drill down and look at all the figures.
Initially, I was worried about these stats, until I considered the equity Edinburgh people have amassed over the same 5 years.
In 2016, the average equity held in an Edinburgh homeowner’s property (whilst still having a mortgage) was £155,846, yet today that stands at £208,960, a rise of £53,114.
Even though mortgages have increased, Edinburgh homeowner’s equity has risen even more, meaning as we stand today, mortgaged and owned-outright properties, there is…
£65,287,126,100 of equity held in all Edinburgh homes.
Whilst the total value of mortgages has increased slightly since 2016, as a percentage, this has gone down meaning Edinburgh homeowners and Edinburgh landlords have increased their equity in the last five years.
It can quite clearly be seen that the financial insecurity sparked by the Credit Crunch crisis of 2008/9 has created a generation of Edinburgh homeowners and landlords who are savers and improvers rather than movers and excessive borrowers, using excess cash to invest in their property and pay down debt or to excessively borrow on their equity growth.
Only 13.4% of the total value of Edinburgh propertyis borrowed money with a mortgage.
This is great news for every Edinburgh homeowner and Edinburgh landlord because irrespective of whether the ‘Post Lockdown Bounce’ is short or long-lived, it shows the Edinburgh property market is in a better state to ride out any storm that it might encounter than ever before because less people will be in negative equity or have prohibitively high mortgages.
Before I finish, I fully appreciate money and inheritance is a sensitive subject for many families.
My message to all the Edinburgh parents is, just because your children aren’t talking about the subject, it doesn’t mean it’s not on their mind.
The lead has to come from you, as an Edinburgh parent to ensure the wealth held in your bricks and mortar can be used to your family’s advantage, when they need it most.
If you do, your children will thank you for it and they may even do exactly the same for their children, then, they will do the same for their children’s children … creating a legacy that will go on for generations.
