If your children have flown the nest, the family home will feel a lot bigger, and you may be considering downsizing. This could be to resolve the impact of living in a once too small and noisy and now too big and quiet home, for financial reasons, or both.
A smaller home could feel cosier and need less maintenance and if you choose a property that’s lower in value than your current home, you could free up capital. Freed up capital could be used to reduce your mortgage which could allow you to access more favourable mortgage rates. This could reduce your monthly expenditure to help your child out with expensive tuition fees, living costs, rental deposit, etc.
Though, before you jump in, it’s important to think about the pros and cons carefully.
Is downsizing for me?
First off, you should consider how attached you are to your family home and area and if it holds a great deal of sentimental value. Might you regret it later if you sold up? It could be hard to leave behind especially if: your children have grown up there; you’re close with your neighbours; or you have added personal touches to your home that you’ll miss. You’ll also have to bear in mind, downsizing means less space – so, you may have to declutter your possessions. Equally, if you’ve moved around a lot in the past or this is your opportunity to move into your dream home or area, this may not be an issue.
Although downsizing could grant you some extra cash, don’t forget the costs associated with moving. Consider house prices – would you be able to stay in the same area and just move to a smaller property or have to move to a different location where property prices are cheaper to free up more equity. There are also the added costs to consider: arrangement, legal, survey and valuation fees, Stamp Duty Tax (SDLT), removals, to name a few. Moving home is expensive,so it’s important to weigh up the pros and cons.
Another benefit of keeping the family home (but could also be seen as a con…) is that your child has the option to move back into the family home once they’ve finished university. This gives them more of a chance to build their savings. Also, the house could have a continued purpose for family occasions and get togethers. These are all things you should consider before taking the leap! And of course, another consideration is that in time, your children may become parents themselves and you may find that your existing home is once again the perfect size! So, it’s important to make the right choice for you.
Should I buy my child a property at university?
You might even be considering using some of the funds from the sale of your property to invest in a property for your child to live. There’s a lot to consider, here we mention two ways that you can approach this:
1. Parent buys the investment property
This could save your child the cost of renting, and you could potentially cover the mortgage, if you are renting out a larger property with other student tenants. However, you’d need to think about the cost of buying and the length of investment. Take into consideration the costs of SDLT and maybe furnishing the rental property, but also being able to meet the criteria for a Buy to Let mortgage and the needs of the lender from an income point of view. You might need to apply to the council for planning permission to turn it into a house in multiple occupation (HMO) and you would become a landlord, which comes with certain responsibilities. Also, how long are you intending to keep the property for? If short term, the cost of sale should be factored in and could reduce the benefit. If long term, how is it going to be managed once your child has moved out? If you require an agent to manage the property, that’s going to cost you too.
2. Student buys their own property
A small number of specialist lenders offer students a ‘Buy for Uni’ mortgage product which offers up to 100% of the purchase price and is designed to use the expected rental income from the property as part of the affordability calculation. If there’s a shortfall in any month, then the lender will look to the parent(s) as joint borrower(s) to reach the monthly mortgage amount needed. But again, it’s important to think about how long they’ll want the property for when weighing up the cost benefit. Currently (though the threshold is due to change from March 2025) your child won’t pay Stamp Duty on purchases up to £425,000, as a first time buyer. This could set them up nicely if they intend to stay in the property for a longer period. But it does means they’ll lose this benefit when they come to buy their next home.
