Over the years, I have acquired several properties for clients who were buying for their children.
The values have ranged from c. £750,000 to several million.
The children’s ages vary massively too. In some instances, they have left university while others are still at prep school.
The apartment I have just bought personally was partly driven by the fact that not only was it a good deal, but it will be given to the children when they are old enough – Milo is 10 and Flora is 7. That is assuming, of course, that they haven’t annoyed me intensely in the intervening period, so in all likelihood I’ll keep it for myself….
Now to the bystander, this may seem like an incredibly strange thing to do. Is it not rather risky doing this when we have Brexit, Corbyn and other untold worries to contend with?
Well there is almost always something to worry about, but it is never as bad as it seems. See below the chart of the KF Prime property index since 1985. This includes the big crash of 1990, the UK being thrown out of the European exchange rate mechanism in 1992, the Dotcom crash, 9/11 and the great financial crisis of 2008.
Now for large chunks of this period conventional wisdom was saying that property was an unsafe asset, it was overpriced and that prices had to crash. And in some instances, they did (although ironically conventional wisdom called for the crashes during the boom periods and then acknowledged that prices only went up just as they were about to crash – think of the prevailing attitude in 2007…).
But compare the crashes to the price gains.
And this is not just the 1980’s. My best friend’s uncle who sadly passed away last week, bought his home in Tregunter Road in the 1950’s. Back then, he was told that he was mad because it was a huge house for a single man and he was paying too much because Tregunter Road was a rather undesirable area.
The house is now worth c. £12m. He bought it for £18,000. And the period from the 1950’s was not without its issues if you are currently worried about Brexit, etc. It included the Cold War, the Cuban missile crisis and the UK as the sick man of Europe, not to mention the oil crisis and IRA attacks.
If there has been one constant in the history of the UK, it is that land prices have gone up in a cyclical fashion (this has been happening since the 1600’s. If you need proof of this just look at the Duke of Westminster, he has done rather well despite property taxes rising dramatically since they started developing the estate.
Now you may argue that he had a head start. But if you are buying now, then so did anyone who bought in 2000 or even 2007 for that matter. Just as if you buy now, you will have a head start over future generations. Because house prices have always outperformed earnings and rent.
This is because the real value of a property is in the land and not the house itself, which is why just about everyone misunderstands how house prices function and why renting is not wise – even if it seems cheaper to rent than to pay a mortgage.
Look at the chart above again. The evidence is irrefutable even if conventional wisdom says otherwise.
But you need to be careful when buying for children.
You must consider the best way to structure the transaction, because as much as we all love our kids, gifting them a large sum of money – even if it’s in the form of a property – is not without its risks.
As much as we trust our children, we don’t know for certain what will happen: they may fall in with the wrong crowd, they may have a gambling problem or they may have a brilliant business idea which turns out not to be quite so good.
In all these cases, you may want to retain some control over the property, so that it can’t be sold without your knowledge and the money used inappropriately in a worst case scenario, however unlikely that may be.
The good news is that there are several ways to do this and there are also, currently, some very interesting mortgage products which allow you to finance the property for your children in a very attractive way.
If you would like to know more, please contact email@example.com or call 02034578855 (+442034578855 from outside the UK).
Ask yourself this. Is the world is becoming richer? Yes it is and at a rapid rate - property prices in all the world’s major cities will increase dramatically because of this. The good news is that you can take advantage of this trend now.
Of course, you can wait and you will be able to help your children to buy a property in years to come, but just not in the areas that you might prefer. Just as Tregunter Road was once seen as undesirable, it has rocketed in value. The same will be true for areas such as Slough and Croydon. They soon will seem expensive.
So, if Slough & Croydon (both of which are soaring in value) become “too expensive” despite being some way from the centre of London, what do you think prices will be like more centrally? This is why I bought centrally last year.
So, if you would like to know more about structuring property purchases for your children and the finance options available, please contact firstname.lastname@example.org or call 02034578855 (+442034578855 from outside the UK).
And if you disagree vehemently or have any questions, I would love to hear from you, but again, please respond to Veronika as you will receive a swifter response that way.