From property to possessions and savings, many people may have a plan as to what they wish to happen to their estate following their death. However, it seems that funds which would typically be expected to be passed on to loved ones after death are instead being given earlier by many people, in an effort to help first-time buyers get a mortgage and step foot onto the property ladder.
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According to new research, 40 percent of UK first-time buyers receive inheritance funds early, to contribute to their first home deposit.
The research from online mortgage broker and lender Habito, found that this figure jumps to a staggering 60 percent in London, and 45 percent in the South East.
The mortgage broker said Londoners are almost a third (31 percent) more likely to receive their inheritance early in order to help get on the property ladder than any other region in the UK.
The survey also found that 80 percent of people living in the capital have been offered a form of financial support from their families to help with a home deposit.
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Mortgage deposit: Giving inheritance funds are a way in which families are helping first-time buyers (Image: GETTY)
Mortgage deposits can be a challenge to amass – and inheritance money may be helping some (Image: GETTY)
It might not come as a surprise that Londoners looking to get on the property ladder are in need of some help, with Halifax recently finding the average London deposit is £106,000 or 26 per cent of the average house price in the city.
So, how are families giving their grown-up children the financial support they need for a deposit?
There are numerous ways which have proved popular, and it seems that for 59 percent, this is done by tapping into their own savings.
Meanwhile 40 percent said this was giving as inheritance.
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The research found that borrowing was another way in which the Bank of Mum and Dad have been helping their adult children, with 32 percent borrowing more against their family home and 28 percent taking out a loan.
Moving elsewhere was another method, with 27 percent saying they downsized in order to release money to pass on.
Daniel Hegarty, CEO and co-founder of Habito, said: “While first time buyers really drove the property market last year, it’s clear that most have to rely on help from their families who are going to incredible lengths to help get their adult children get on the property ladder.
“The Government urgently needs to do more to address the barriers to homeownership.
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“The need for detail and clarity on the Conservatives’ ‘First Homes’ policy, designed to provide homes for local people at a discount of at least 30 percent, and their new market for “lifetime” fixed-rate mortgages, is pressing for the Spring Budget in a few weeks’ time.”
Rosita Janulion, a mortgage expert at Habito, commented: “For those that can’t rely on family help there are Government buying schemes – such as Help to Buy and Shared Ownership that are worth exploring as they might work for you.
“Also, keep in mind that ‘average prices’ vary hugely from borough to borough, so don’t take ‘average London price’ to mean everywhere across the city; there are more affordable neighbourhoods.”
Some people may wonder whether they can pass on their money to children and what it means in relation to Inheritance Tax.
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Usually, there is no Inheritance Tax to pay on small gifts which are made out of normal income, such as Christmas or birthday presents.
These types of gifts are known as “exempted gifts”.
There is no Inheritance Tax to pay on gifts which are exchanged between spouses or civil partners, meaning a person can give their other half as much as they like during their lifetime, provided hey live in the UK permanently.
However, gifts which are not exempt may be subject to Inheritance Tax after a person dies.
A seven-year rule is in place, meaning non-exempt gifts given within this time may be subject to Inheritance Tax – however these rates are tapered.
This means the rate varies, and this depends on how long it has been between the gift being given and the death.