With house prices have risen over the last decade, many young people have found it tough to get on the property ladder. Some are choosing to co-buy with friends, but it is not without its risks.
Courtney McClure is buying a six-bedroom house with her husband Alex and another couple in south London.
The deal is almost complete and the group is excited to make the property in Sydenham, which has a large garden and big communal spaces, their own.
Pooling their resources with another couple has enabled them to buy in a “much more appealing” location with better transport links than if they had bought a place separately, Courtney says.
“We’re getting a lot more for our money,” adds Alex, a 32-year-old sound engineer.
But money should never be the sole motivation to buy with friends, Courtney says. “It’s such a big thing. You’re sharing your world. I think if you were just doing it for cost reasons, you probably wouldn’t enjoy it.”
Her view is echoed by Lucy Jordan who believes buying property with friends, or co-buying is “the answer”.
Not only is it a wise choice financially, it is also the “best option”, because “people are better off living in groups”, she says.
“People are trying to decide how best to make the most of their lives,” says Lucy, who currently lives in Harlesden, north London. For her this means buying a property in or near Dover, with her partner and four friends.
The group has not laid their eyes on any particular places, but Lucy says: “We’re all quite passionate about it. It’s definitely the way we’re going to go.”
Are more people doing this?
M&S Bank believes there has been an increase in people co-buying. Last year it launched a “mortgage for four”, following research it says showed that the “majority of millennials would take out a mortgage with two or more people to get a foot on the property ladder”.
“The option of becoming a mortgage-mate is particularly appealing to those already in a housemate arrangement, and our research shows that the concept has become increasingly popular with millennials,” Paul Stokes, head of products at M&S Bank, said.
Mortgage brokers London & Country have detected a small increase in applications by groups of three or four, but spokesman David Hollingworth says this increase does not capture mortgages taken out by two friends, for example, and does not make clear if applicants have “parental backing”.
Though the phenomenon might be on the up, Alex McClure says when he and his co-buyers approached estate agents, “a lot of them seemed quite surprised – I think it’s still considered abnormal.”
Not all lenders offer group mortgages either. Nationwide, one of the UK’s largest mortgage lenders, for example, currently has a maximum of two people per mortgage.
What about the risks?
London & Country’s David Hollingworth warns that if one co-buyer wants to move on, this could create a situation where the “other co-buyers would either have to buy them out or if they can’t afford that, be faced with the prospect of selling the property”.
Even if four people’s names are on a mortgage, if one or more stop paying, the mortgage lender has the right to demand full repayments from whoever they can reach, he explains.
Sean Gilbert, a 40-year-old flooring contractor from Bedfordshire, says co-buying is “insanely risky”.
He now lives in his 16th rented property since leaving school but says house prices have been “artificially inflated” by the buy-to-let market, and he is “resigned to never owning”.
But he would never consider co-buying. “There are virtually zero legal safeguards if someone wants to up and leave, taking their capital with them.”
‘In it together’
Lucy Jordan, however, has “complete trust” in her group.
“We’re all incredibly close, and if something were to happen that would mean one of us would become financially insolvent, I would want to support them. We’re all in it together. I see us more as a family,” she says.
There are, however, some ways to formalise co-buyers’ obligations towards each other.
The McClures and their co-buyers have drawn up a deed of trust, which is a legal agreement used to specify how a property is held between its joint owners.
It sets out steps the group would take “if someone wants out”, Courtney explains.
“I don’t think anyone will have any hard feelings if someone is really honest and says, ‘I really hate this,’ and I think it’s better to do that and stay friends than put up with a terrible situation,” she adds.
For now though, the group of friends are excited to move in together – with one couple on each floor, and sharing the cost of any renovation and possibly childcare in a few years time.
Six years ago a major development was announced in South Africa. Billed as a game changer, it was meant to alter the urban footprint of Johannesburg, Africa’s richest city, forever.
The Modderfontein New City project was launched amid much fanfare, expectation and media hype.
Zendai, a Chinese developer, bought a 1600-hectare site north-east of Johannesburg for the development, which it quickly dubbed as the “New York of Africa”. Early plans showed it was to include 55,000 housing units, 1,468,000 m2 of office space and all the necessary amenities for urban life in the form of a single large-scale urban district. The cost estimate was set at R84 billion.
The developers believed that Modderfontein could function as a global business hub and would become Johannesburg’s main commercial center, replacing Sandton. The project would also change Johannesburg’s international profile by strengthening relations with Asian corporate interests.
But, despite the release of futuristic computer-generated images which led to significant publicity for the project, it was never built. Instead, the land was eventually sold off. Another developer has since begun construction on a much more scaled down project, in the form of a gated-community style housing development.
Modderfontein has faded away from the public consciousness. The story of why it failed has never been adequately told in the media.
Our research, which took place over the course of several years, sought to understand the factors which led to the project’s demise. We also wanted to find out how Modderfontein’s failure relates to the broader African urban context.
We found that the project was hindered by conflicting visions between the developer and the City of Johannesburg. Moreover, unexpectedly low demand for both housing and office space meant the original plan for the project was incompatible with the city’s real estate market.
The project’s trajectory also shows how African “edge-city” developments, which are generally elite-driven and marketed as “eco-friendly” or “smart”, can be influenced by a strong local government with the means and willingness to shape development.
Zendai’s aspirations to produce a high-end, mixed-used development did not fit with the City of Johannesburg’s approach. Rather than a luxurious global hub, the city wanted a more inclusive development – one which reflected the principles outlined in its 2014 Spatial Development Framework.
At the heart of the framework is the desire to reshape a trend that saw capital leave the old central business district for affluent Sandton at the dawn of democracy in 1994. This was accompanied by an upsurge in securitized suburbs further north towards Pretoria, the country’s capital city.
These spatial trends were incompatible with the ideals of South Africa’s new democratic government and its strategy to mitigate the effects of apartheid-era planning. During apartheid, black people were prohibited from living in more affluent areas, which were reserved for the minority white population. Instead, they were forced into sprawling “townships” on the periphery of cities, far from work and economic opportunities.
To this end, the city demanded that Zendai include at least 5 000 affordable homes in its plans. It also wanted to ensure that the development was compatible with and complemented Johannesburg’s public transport system. The city was willing to contribute funding for the necessary infrastructure and inclusive housing.
Yet Zendai remained steadfast in its commitment to its vision, eventually deciding against fully integrating the city’s wishes into its planning application. This saw the city draw-out the planning process.
Meanwhile, problems were mounting for Zendai. The owner, Dai Zhikang, was eventually forced to sell his stake in the project to the China Orient Asset Management Company. Rather than continuing with the project, the asset managers sold the land to the company behind the new housing development on the site.
Smart cities in Africa
Over the last decade, a variety of developments like Modderfontein, including Eko-Atlantic in Nigeria, New Cairo in Egypt, and Konza Technology City in Kenya, have been touted by both public and private sectors as panaceas for Africa’s urban problems. The thinking is that as the developments are disconnected from the existing urban landscape, they won’t be burdened by crime or informality. However, these projects can take badly needed resources away from the marginalized areas of the city.
To make them more palatable to domestic and international audiences, the developments are usually marketed as “smart” or “eco-friendly”.
But these developments can fail at the point of implementation. This is because, as speculative projects, they generally don’t recognize the need to fit in with the wishes of the local authorities or adapt to the existing city. In the case of Modderfontein, the city government had the capability to push back against the developers and, in the end, tried to shape the project to better fit Johannesburg’s urban realities.
Source: Ricardo Reboredo And Frances Brill, The Conversation
In complex, protracted transactions like property sales, delays are not only frustrating, they can also be extremely costly and may even torpedo the deal completely. However, while some delays cannot be foreseen, it’s possible to exponentially reduce the risk by doing one’s homework and having all one’s ducks in a row from the onset.
This is according to Jill Lloyd, veteran agent and Area Specialist in Rondebosch and Claremont for Lew Geffen Sotheby’s International Realty, who says: “Essentially there are two primary types of delay; the first relating to the confirmation of the sale and those that occur once the sale has been confirmed and hold up the transfer.
“Property transactions are known to be lengthy processes with multiple steps and reams of documentation, and once the potential minefield of suspensive conditions and contractual obligations has been successfully navigated and the deal is finally done, many people breathe a sigh of relief. But the expected downhill cruise to transfer can still become an uphill battle if one isn’t careful.”
Lloyd explains how this can happen:
“One of the main reasons for delayed transfers is that the timeline is out of sync, especially when two or more deals are linked and money from one sale is needed to purchase the next property and so on. I once brokered a transaction with seven linked deals all dependent on the sale of a Rondebosch East home and we had to pull out all the stops to get the house sold in time.
“It is also very important for buyers to budget for the transfer costs of the new property they are buying or have an access bond in place on their current home, otherwise when the attorney calls for bond cancellation that bond account will be frozen and they will not be able to access the funds.”
She adds that not giving the required 90 days’ notice of cancellation of the existing bond can also cause delays as well as avoidable late cancellation fees.
“If a homeowner is seriously thinking about selling, they should give notice to the bank holding the bond. In doing so, they are not committing to selling, merely notifying the bank of the possibility and they can keep on renewing the cancellation if they don’t sell timeously or revoke the notification if they change their minds.”
Craig Guthrie, Partner at Guthrie Colananni Attorneys says: “One of the transferring attorney’s key roles is to coordinate and control all the role players involved in a transfer, including SARS (transfer duty), the municipality (Rates Clearance Certificate) and the bank.
In order to do this as seamlessly as possible, it is essential that both the buyer and seller submit all the necessary documentation in time, as per the legal requirements and without omissions. This is especially important if either party resides in another country or is otherwise difficult to contact for information and signatures.
Guthrie says that although hiccups and stumbling blocks can occur at any point of the transaction, they most commonly occur at the following stages:
The signing of transfer documents
Obtaining valid compliance certificates
Issues encountered at lodgements requiring the removal of notes by the Registrar of Deeds
Transfers which are unusual and more complex, such as estate transfers which require an endorsement of the Master of the High Court, which can cause a delay
Most of these delays can easily be avoided, through prompt co-operation with the transferring attorney and the paralegal handling their transfer or, if they are outside of South Africa, by giving a valid power of attorney to a person within South Africa who can sign the necessary documents and act on their behalf.
“It’s vital that the client is completely up front with the agent regarding their financial situation,” says Lloyd. “We can then facilitate and expedite the process by having our bond broker at ooba, South Africa’s largest mortgage originator, prequalify them and the thorough credit check will reveal any potential snags.
“This step is particularly important for buyers who are self-employed as banks are very strict about the documentation that they require for a bond application. At this stage I always advise all my clients to avoid making any expensive purchases that could negatively impact their affordability.”
Lloyd concludes: “Experienced estate agents will guide their clients every step of the way and as long as they are upfront with their realtors, there should not be too many problems to circumvent.
“I also recommend appointing an accomplished conveyancing attorney who is really on the ball. It is all very well allowing your best friend to handle the transfer, but you could end up being enemies if they make a complete hash of it and that happens more often than I like to remember!
“And, as the transferring attorney and agent work closely together behind the scenes to ensure a smooth transfer, it is always an advantage if they already have an established working relationship.”
The intervention by the Family Home Fund (FHF) in the Nigerian housing sector to deliver affordable housing to low-income earners in the country will significantly improve the GDP and economy of the states where the intervention is already yielding fruits, people familiar with the Fund have said.
EchoStone is a property development firm that deploys an innovative technology which allows rapid and scalable construction of houses. It is currently building 2,000 housing units beginning with 250 units of two-bedroom detached bungalows in Idale Badagry, Lagos. FHF is to build 20,000 housing units in Lagos.
So far, about six state governments including the FCT have donated land for the development of various numbers of housing units, including Ebonyi State which has donated land for developing 1,200 homes.
Kaduna State has also donated land for its millennium city which promises about 650 homes; the ancient city of Kano has 757 homes; Asaba, Delta State, about 620 homes; Ogun State, about 1, 074 homes; FCT, about 580 homes, while Akwa Ibom has donated land and signed MoU with the fund for the construction of 5,000 low-income houses.
There is an expectation that through a combination of these housing development activities, 1.5 million jobs will be created for both skilled and unskilled labour that will be working at the construction sites.
Analysts say the creation of 1.5 million jobs will have significant impact on the economies of the states, more so with the multiplier effect of job creation.
“When you give job to one person, you shall have impacted the lives of about four or five more persons,” noted Johnson Chukwuma, a civil engineer.
He explained that, one way or another, part of the income earned by these workers goes to the state government by way of paying taxes or other levies, stressing that a state with healthy citizens is, by implication, a wealthy state.
FHF, which is arguably the largest affordable housing-focused fund in sub-Saharan Africa, was in Lagos recently and, according to Femi Adewole, its managing director, its mission to Lagos was to explore a potential partnership for a large-scale affordable housing scheme with a specific focus on Lagosians on low income.
“Alongside good quality homes, the programme will be looking to create jobs for Lagosians. Other aspects of the scheme include a commitment that we are not just to build housing units; we also need to look into the environment and climate change issues which now stare us in the face,” Adewole said.
He assured of the fund’s commitment to the provision of affordable housing, disclosing that they had invested over N20 billion in housing projects to support Nigerians who are earning below N100,000.
“We are also providing financing for developers who will build homes ranging between N2.5 million to N5 million,” he said.
Besides providing funding for the product suppliers, the Fund also aids the demand side by assisting house buyers, giving them a deferred loan for up to 40 percent cost of the houses. The Fund supports local content in the house-building process and Adewole disclosed that their long-term objective was to ensure that up to 80 percent of manufactured inputs were locally produced.
Real estate investing interests large numbers of people, especially when home prices are rising. And that’s been the case in recent years. According to the latest figures from the Federal Reserve, “The median net worth of homeowners increased 15 percent between 2013 and 2016, whereas that of renters or other non-homeowners fell 5 percent.”
Logically, if homeowners are doing so well, then doesn’t it make sense to own more than one house? If you want to be an investor, you’ll need real cash. But how much do you need? In some cases, as we shall see, the answer is very little.
Cash needs for real estate investing
The cash needed to purchase investment property will vary according to many factors. The three big items to watch are the cash needed for a down payment, the cash needed to close, and the cash immediately required for moving and repairs. Additionally, buyers should always have reserves in case something unexpected takes place.
Owner-occupants typically finance a home with one of four options: FHA mortgages, VA financing, conforming loans that can be bought by Fannie Mae and Freddie Mac, and USDA mortgages.
For investors, most of those programs are off-limits. Neither FHA nor VA programs allow pure investor mortgages. The property must be owner-occupied to be eligible. On the other hand, with just 3.5 percent down (FHA) or even zero down (VA), you can finance a property with as many as four units if you live in one unit as your prime residence.
Fannie Mae and Freddie Mac do allow investor loans, but buyers must be highly-qualified and bring a larger down payment.
There are situations where real estate investing can be done with less cash. Some options to consider include:
Many loan programs allow owners to provide a seller contribution, from 2 to 6 percent of the sale price. Typically, such contributions can be used to offset closing costs and mortgage borrowing. However, there is a minimum down payment that must come from the buyer.
While seller contributions typically cannot be used to pay some or all of the down payment, that is generally not the case with gifts. Gifts – especially from friends and family – can offset down payment requirements.
To make sure a gift is really a gift and not a disguised loan, lenders require a “gift letter” from the donor stating that the money is a gift and that no repayment or interest is required. They also often want bank statements from the gift-giver to prove that he or she has the money to give you, and a paper trail showing that the money exited the giver’s account and entered yours.
Co-buyers and co-borrowers
If cash is a problem, perhaps the answer is to find a financially-strong co-buyer. With an equity-sharing agreement, you have an occupant-owner and a non-resident investor owner.
Both partners pay their share of mortgage costs, taxes, repairs, etc. However, the owner-occupant pays rent. For tax purposes, the rent is income to both parties, and the mortgage interest, property taxes, depreciation and other costs count as deductions from that income.
The property may generate positive cash flow to both parties, create paper losses to be deducted from other income — or even both.
When the property is sold, the owners divide the profit or loss. A written equity sharing agreement is a must – speak with a real estate attorney for details.
Those with an interest in flipping often need to act quickly, or they’ll lose a property. Private lenders, historically known as hard money lenders, can often fund transactions in 10 days or so but such loans require a lot of cash. According to the Housing News Report, “Private lenders often have terms which include 70 percent loan-to-value (LTV) ratios, 3 to 4 points, interest from 8 to 13 percent, and a length of one to two years.”
Financing from private lenders tends to be short-term because the assumption is that flippers will quickly re-sell properties. However, stalled repairs, surprise problems, unexpected costs, and changes in market demand can delay sales and make flipping very risky. An alternative funding approach is to team with other investors, pool money, and buy property for cash.
Today’s FHA and VA home loan programs allow qualified borrowers to assume existing mortgages for investment property purchases. For VA home loans, you don’t need to be eligible for VA financing yourself. you don’t have to be in the military or a veteran.
The upside is that you can save money on mortgage origination costs, and may get a better interest rate than is currently available. (This depends on when the existing mortgage was taken, and how much the home seller is paying.)
However, you’re likely to need a sizable down payment. The reason is that the loan balance has been paid down by the current owner, while the home value is likely to have increased.
If your seller has a 3.75 percent interest rate, that’s much better than you can get right now. That rate was available in 2016. So let’s assume that the current seller paid $200,000 for a home put 5 percent down. Three years later, the loan balance would be about $188,000. meanwhile, if the property value increased at 5 percent per year, it’s worth $231,525. You’d need $43,525 to make up the difference.
Rather than one loan, why not purchase with two? This is not only a way to reduce cash needed, but it can also eliminate mortgage insurance costs.
For example, you want to buy a $300,000 property. You could buy with $60,000 down (20 percent) and a $240,000 mortgage (80 percent). Alternatively, you could buy with a $240,000 mortgage and a second loan for $45,000. Now you have $285,000 in financing and need just 5 percent down in cash – a total of $15,000 plus closing costs.
It has never been harder to get a foot on the housing ladder. House prices are now nearly eight times the average wage, and they have been rising faster than most can save.
Almost one in four first-time buyers are now turning to the ‘Bank of Mum and Dad’, figures from insurer Aldermore Bank show.
And 30-year-olds whose parents have no property wealth are 60 percent less likely to be homeowners, according to the Resolution Foundation.
But if you can’t hand over a hefty deposit to your loved ones, you could still lend a hand.
Last week we explained how you can aid them in preparing their finances to get mortgage-fit in two years. Here, we explore other ways to help them get the keys to their first home…
GIVE IT ALL AWAY
Family or friends can give all — or a chunk — of a deposit to the buyer as a simple, tax-free, non-returnable gift.
Simply handing over a deposit is the most common way parents help their children onto the ladder, and this is where the term ‘Bank of Mum and Dad’ originates.
Legal & General figures show the Bank of Mum and Dad gave close to £5.7 billion in 2018.
Alongside savings accounts for first-time buyers such as Help to Buy and Lifetime Isas, a gifted deposit can top up any shortfall.
But this may be an option only for wealthy parents who have money they won’t need in retirement if they intend to give all their loved ones an equal deposit.
Vicky Bradley, a product manager at Skipton Building Society, had saved £9,000 for a deposit when she fell in love with a £125,000 two-bed terraced house in Keighley, West Yorkshire.
Her parents, Bob and Linda Bradley, offered to help cover the 10 percent deposit and fees.
‘They agreed to an informal loan of £3,000, but then told me it was really a gift,’ says Vicky. ‘It was such a lovely surprise and allowed me to arrange a mortgage straight away.’
Gifted money could be subject to inheritance tax. For gifts above your annual allowance of £3,000, you must live longer than seven years from the date you gave the money away to avoid the risk of an inheritance tax liability on your donation.
A gifted deposit can also prompt questions over who gets the money back if a couple of splits and their house is sold.
A solicitor can draw up a legal document such as a Declaration of Trust to note which buyer the gift was given , and the share of the property to which they are entitled.
…OR GET IT BACK
If you cannot afford to give a deposit away, then you can lend it — on your own terms.
A loan lets you keep some control by specifying when you need the cash back. It may be exempt from inheritance tax but the rules are complex, so check with a tax expert first.
A solicitor is needed to draw up the terms and, just like with a mortgage, the parents would register a charge on the property deeds to ensure the loan is paid back.
The charge on the deeds would specify that on the sale of the property, or when it is remortgaged, the money lent is repaid.
A drawback for the parents, however, is that they are also required to stick to the terms and cannot readily access their cash.
Only a handful of lenders accept a parental loan as a deposit, and those that do take monthly repayments into account — which could restrict the amount your child can borrow.
LOAN YOUR NAME
First-time buyers can now add their parents to the mortgage application while keeping Mum and Dad’s names off the deeds.
A ‘joint borrower, sole proprietor’ deal allows the buyer to apply for a home loan using their parents’ income. Adding family members to the mortgage, but not the property, has grown in popularity.
Lenders prefer this over a traditional guarantor deal, where parents are vetted separately to make sure they can make payments in case the children default on the loan.
After Virgin Money withdrew its guarantor mortgage last year due to a lack of demand, only a handful of lenders, including Hinckley & Rugby, Cambridge and Market Harborough building societies, will still consider this type of deal.
Instead, around 20 lenders offer the new joint borrower arrangement — double that available ten years ago.
High Street banks such as Barclays, Metro, and Clydesdale offer a mortgage on these terms, along with building societies such as Newcastle, Hinckley & Rugby and Buckinghamshire. Interest rates are typically the same as with a regular mortgage.
The cheapest five-year fix available is 2.34 percent with Barclays for borrowers with a 10 percent deposit. On a mortgage of £150,000, the monthly repayments would be £661. Over five years, the total cost of the mortgage, including a £999 fee, would be £40,659.
The length of the mortgage offered will depend on the age of the oldest borrower.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: ‘This type of deal helps with the affordability of the mortgage but not the deposit.
It also ensures the child qualifies for first-time buyer stamp duty exemptions, while the parents sidestep the additional 3 percent stamp duty surcharge for purchasing a second home.’
And by not owning a share of the first-time buyer’s home, parents can also avoid paying capital gains tax on any increase in the value of the house when it is sold.
But Mr Harris warns: ‘Anyone named on the mortgage is jointly responsible for making payments. It could also damage their credit rating if repayments are not maintained, and affect the parents’ ability to take out further debt in the future.’
Among specialist offers aimed at families is a 100 percent mortgage tied to a savings account.
This allows first-time buyers to buy a house without a deposit on the condition that a family member deposits money in attached savings account for a fixed period.
The Barclays Family Springboard and Lloyds Lend A Hand mortgages require 10 percent of the value of the house to be locked away in a fixed-interest savings account for three years.
Although your money is tucked away and you cannot access it in an emergency, you will get it back, along with interest, when the term ends.
Lloyds pays 2.5 percent on savings, and Barclays currently pays 2.25 percent — its rate is set 1.5 percent above the Bank of England base rate.
David Hollingworth, of mortgage broker L&C, says: ‘This could help parents or grandparents who are not in a position to give money away, or have a large family and need to share their wealth around.’
But for the first-time buyer, it may mean they have to stay in the property until its value increases enough to give them a substantial deposit in order to take the next step on the housing ladder.
If the house price falls, they could find themselves in negative equity. If mortgage payments are missed, banks may hold on to the money for longer until they are cleared or, depending on the lender, use some of the money to clear any debts.
Former garage owner Carl Bojen, 65, used the Family Springboard mortgage to help his granddaughter Toni Thornton, 28, buy her first home nearby in Grimsby, Lincolnshire, with partner Kane Ramsey and their son Ronny, three.
‘I want to help all my grandchildren buy their own homes, but it would break me to give all six of them a deposit,’ Carl says.
Carl and his wife Linda, 65, put £13,200 of their savings — 10 percent of the £132,000 purchase price — into a Barclays savings account attached to the mortgage. After three years Carl and Linda will get their money back with interest, ready to help their next grandchild.
Without help, Toni, who works in telephone sales, and electrician Kane would have had to save for another three years.
Another option for families is, instead of offering cash as a deposit, parents can allow the bank to put a charge — like a mortgage — on their home for the equivalent amount.
The value of that charge could be, for example, 20 to 25 percent of the value of the first-time buyer’s house. It remains on the property for around 10 years.
It can be reviewed before then, and if there is enough equity built up in the home, it can be removed early.
Aldermore Bank and Family Building Society are two lenders that offer these types of mortgages. Family BS requires the first-time buyer to contribute 5 percent of the deposit.
It could suit parents who have lots of property wealth and do not plan to move house.
If parents want to move, particularly in the short term, there must be enough equity in their new home to still provide the same guarantee.
There is also the risk that they could lose their home if their child or grandchild’s house is repossessed and there is not enough money to repay the loan.
Families can also use a savings account to slash the interest a first-time buyer pays on their mortgage.
A family offset mortgage is similar to the savings and mortgage account option, but instead of getting interested on the money in the account, it is used to reduce the mortgage cost.
When the mortgage lender checks whether the first-time buyer can afford the mortgage, they will base the assessment on the lower monthly payments, after the parents’ savings have been taken into account.
For example, if a mortgage of £150,000 was taken out, and £50,000 savings were deposited in the account, the borrower would only pay interest on £100,000 of the mortgage.
Family Building Society and Yorkshire Building Society are among those which offer the deal.
Parents will get their money back after a fixed period. This is usually ten years, but it can be reviewed earlier — for example, when the borrower’s fixed rate comes to an end.
The drawback is that the money is locked away for a period and will not earn interest for the parents. It could also be eroded by inflation.
If the house is repossessed or sold for less than the loan amount due, savings in the offset account can also be used to foot the shortfall.
But in a low-interest rate environment, savers may prefer to forego earning a small amount of interest in favor of helping their children pay less towards their monthly mortgage payments.
Kim and Alison Wilkinson, both 60, from Surrey, used a Family Building Society offset mortgage to help their daughter Sarah, 26, buy a £260,000 three-bedroom terraced home in Portsmouth, Hampshire.
The couple had built up savings but did not need to use them in the short term. Earning next to no interest in a savings account, they decided to put the money to better use.
Secondary school teacher Sarah’s mortgage with Family BS was fixed for five years at 2.89 percent.
‘Mum and Dad wanted their money to work as hard as possible,’ says Sarah. ‘By putting it in the offset account, it effectively earned 2.89 percent.’
While she could afford the monthly repayments without her parents’ help, she says: ‘This reduced my mortgage payment from around £750 to £550, which gave me the more disposable income to furnish the house and enjoy treats such as holidays, which I may not have been able to do as a first-time buyer.’
CASH IN PROPERTY
Income-poor older homeowners with plenty of property wealth could unlock their home’s equity to help.
Equity release is available to borrowers aged 55 or over. It allows homeowners to gift their property wealth now, instead of waiting until they die and their house is sold.
In the first half of 2018, close to 20 percent of borrowers taking out equity release used the money to help the family, according to Canada Life.4
The only has to be repaid only when the homeowner dies or moves into long-term care. There are also options that allow borrowers to pay the monthly interest if they want to reduce the cost of the overall loan.
This can also reduce your inheritance tax liability, as the value of the equity release loan will be deducted from the overall estate when the inheritance tax bill is calculated.
Rates on equity release mortgages are higher than traditional mortgages. The average interest rate is 5.24 percent, compared to the average two-year fixed rate of 2.49 percent on a traditional mortgage.
Interest is also rolled up and added to the loan monthly, which can double the debt every 14 years.
Parents or grandparents should seek legal advice before entering into a family mortgage arrangement.
Alhaji Aliko Dangote, President, Dangote Industries, says his continuous efforts to innovate, create value and invest in Nigeria’s economy is borne out of his firm belief in its vast economic potential.
Dangote said this during Dangote Cement Distributor’s Award Night on Monday in Lagos.
He said his target was to ensure that Nigeria becomes self-sufficient in all the sectors where Dangote Industries have its footprint — cement, agriculture, mining and petroleum.
The industrialist noted that the company was at the forefront in exploring opportunities targeted at the diversification of the economy and had continued to roll out massive agricultural projects across the country.
“We have started in rice, while plans are underway for dairy farming. Our push for backward integration in providing our own raw materials on a massive scale has led to the planned investment of 4.6 billion dollars over the next three years in sugar, rice and dairy production alone.
“That will eliminate the country’s reliance on imported food and the foreign exchange outflow that comes with it,” he said.
The industrialist noted that the award was to celebrate its valued customers and distributors for their unflinching partnership in ensuring that Dangote cement products remained the first choice for construction purposes across the country.
“You have made Dangote Cement become a household name and the product of choice among cement users in Nigeria.
“We are leaders in all the sectors where we play, and this demands continuous improvement and partnership with you, our customers.
“Our cement plant in Obajana, Kogi State, is already the biggest in Africa. We are building the fifth line, and hopefully it will come on stream early next year and will make its production 16.25 million tonnes.
“The cement plant and its sisters in Ibeshe, Ogun and Gboko, Benue have long been the bedrock of our leading role in the cement sector.
“Therefore, we are rewarding customers for growth. If they grow, we grow. We grow together,” he said.
Dangote pledged his commitment to the continued innovation toward creating more value for customers as well as stakeholders.
The overall National Best Growth customers rewarded were D.C. Okika Ltd, Lafenax Ltd., Gilbert Igweka Global Concept, Chinedu & Sons Ltd, and Kazab Heritage Ltd.
Also, some of the best Corporate Customers were CCECC Nig. Ltd, ITB Concrete, Julius Berger Nig. Ltd, Dantata & Sawoe Construction Company, EXTEX Group and Setraco Nigeria Ltd.
Dangote Cement posted a Profit After Tax (PAT) of N390.32 billion in its 2018 operations, as against N204.25 billion achieved in 2017.
Besides, the company has maintained its dominance of the Nigerian market, accounting for 65 per cent of the total volume sold in the domestic cement sector in 2018.
Cement revenue from its Nigerian operations increased by 11.9 per cent to N618.3 billion from N552.4 billion.
A breakdown of the recently released GDP report by the National Bureau of Statistics showed a further contraction in the real estate sector. The sector’s real growth stood at -3.85% from -2.68% recorded in the preceding quarter.
The sector has now been in the negative territory for at least 12 consecutive quarters. However, the sector’s contribution increased from 6.5% in Q3’18 to 6.6% in Q4’18.
The global real estate agency, Knight Frank, recently released its ‘The London Report 2019’. In this report, the agency observed:
1. Commercial offices in central London attracted a total of £16.2 billion of global capital ahead of other cities like Paris, Manhattan and Hong Kong. China was the largest investor in the city.
2. London’s real estate market remains the most liquid and transparent in the global market. This will remain an attractive feature for global and domestic investors.
What does this mean for developing countries like Nigeria?
Renewed hope in London’s real estate market coupled with the negative growth recorded in Nigeria’s real estate market reduces the possibility of increased investment in the domestic real estate sector.
Performance of real estate companies in Nigeria
Currently, four companies – UPDC, UAC Property, Union Homes and Skye Shelter Fund – are listed on the Nigerian Stock Exchange.
In the period between December 31, 2018 and January 31, 2019 there was mixed movement in share prices across the board. UPDC and UAC shares declined by 9.9% and 9.95% respectively to N5.95 and N1.72. Union Homes and Skye Shelter Fund’s share prices remained flat at N45.20 and N95.00 respectively.
Outlook for real estate in February
Minimal activities are expected within the real estate sector in February. The election season will slow down activities across various sectors including real estate. However, we expect activities within the sector to improve by H2’19, driven by increased government spending.
All Singapore citizens aged 21 and above will get a one-off “SG Bonus” of up to S$300 each as the 2017 budget came in with a surplus of almost S$10 billion (US $7.6 billion), the city-state’s finance minister announced on Monday.
Finance minister Heng Swee Keat made the announcement during his budget speech in Parliament, describing the bonus as a “hongbao”, the Mandarin word for a monetary gift given on special occasions.
He said this “reflects the government’s long-standing commitment to share of the fruits of Singapore’s development with Singaporeans”, according to Channel News Asia.
The “SG Bonus” will cost the government S$700 million (US $533 million).
The bonus will be paid according to people’s assessable income. About 2.7 million people will get the payouts, which are due by the end of 2018.
Those with an income of S$28,000 or below will be eligible to receive S$300, those whose incomes ranging from S$28,001 to S$100,000 will receive S$200, and those with incomes in excess of S$100,000 will receive S$100.
Singapore’s revised budget for fiscal 2017 showed a surplus of S$9.61 billion, thanks to contributions from statutory boards and higher-than-expected stamp duty.
The surplus will also be used in other ways. Heng said S$5 billion will be set aside for the Rail Infrastructure Fund to save up for new railway lines that Singapore is building.
Another S$2 billion will be set aside for premium subsidies and other forms of support for Eldershield, an insurance scheme that helps senior citizens with severe disabilities to cope with the financial demands of their daily care.
Freddie Mac, which re-entered the Low-Income Housing Tax Credit market last year for the first time in nearly 10 years, is making another investment in affordable housing.
The government-sponsored enterprise announced Monday that it closed a LIHTC fund with National Equity Fund and made three investments, totaling more than $61 million.
The new fund is Freddie’s fifth LITHC fund since re-entering the market last year.
According to Freddie Mac, the first three investments from this new fund will help provide supportive housing for individuals experiencing homelessness and families displaced by Hurricane Harvey.
Specifically, the investments from the new fund will go towards (details from Freddie Mac):
Aiding those displaced by Hurricane Harvey: A $15 million LIHTC equity investment in Houston’s New Hope Housing’s Dale Carnegie development will provide high-quality housing and supportive services to 170 individuals and families displaced by Hurricane Harvey.
Addressing Homelessness on Skid Row: A $19.6 million LIHTC equity investment in Skid Row Housing Trust’s Flor 401 Lofts development in Los Angeles will serve nearly 100 veterans and special needs individuals experiencing homelessness with both housing and supportive services.
Serving Homeless Veterans in South Los Angeles: A $26.5 million LIHTC equity investment in Hollywood Community Housing’s Florence Mills Apartments will help provide supportive housing in South Los Angeles — an area with a very high homeless rate. Thirteen of the 74 units will be designated for homeless veterans.
According to Freddie Mac, it chose to partner with NEF on the new fund because of the nonprofit’s “deep expertise with the LIHTC program, its commitment to serving communities in need, and its ability to support Freddie Mac’s mission of delivering liquidity and stability to underserved markets.”
David Leopold, vice president of Targeted Affordable Sales & Investments at Freddie Mac, said that NEF has a more than 30-year record of making investments in affordable housing, adding that the GSE is “proud” to aid NEF in its mission.
“We believe that extraordinary things can happen with great partners, and NEF’s partnership with Freddie Mac demonstrates that motto to be true,” said Reena Bramblett, NEF’s senior vice president of equity placement. “Freddie Mac’s investments provide life-changing opportunities for the individuals and families that call these LIHTC properties home.”