Parents can turn renters into buyers for just £115 a month

The average house for a first-time buyer costs £241,502, meaning that the average renter bought one with a 10% deposit and a 4.5% repayment mortgage, their monthly payments would be £1,208.

Meanwhile the average rent is £1,279 – up 8.6% in a year according to government figures.

So how can a renter become a buyer? Business consultancy Hargreaves Lansdown personal finance expert Sarah Coles says parents could play a part, even if they saved just £115 a month for their offspring.

How is anyone supposed to get onto the property ladder when there are so many obstacles in the way? With mortgage hoops to jump through, and a mountain to climb when it comes to building a deposit, they’d need to be a Ninja Warrior to stretch to buying a first home – unless they have a significant leg-up. 

The Bank of Mum and Dad makes a huge difference to the next generation’s hopes of ever being able to afford to buy, and the good news is that they don’t need to find a lump sum in order to help.

If renters bought today with a 10% deposit, they’d have no problem paying the average mortgage. It wouldn’t be cheap, at an average of £1,208. However, it’s less than they’re currently forking out for rent each month, which has reached £1,279. It means in many cases, ongoing costs aren’t the problem.

The problem standing in their way is the enormous deposit they need to raise before they get started. 

According to the ONS, a 10% deposit costs £24,150, and the Hargreaves Lansdown ‘Savings & Resilience Barometer’ shows the average renter has just £79 left at the end of the month. It’s why so many of them have either given up their dream of home ownership, lent on family members, or faced major lifestyle sacrifices.

However, it doesn’t have to be this hard. 

Parents don’t have to free up tens of thousands of pounds overnight to help their offspring onto the property ladder. If they start saving early enough, using a Junior ISA, it can cost as little as £115 a month.

The answer is for parents to think about this far enough in advance, and put their money to work as hard as possible. During the early years, grandparents may be able to step in, to keep their grandchild’s property dreams on track. Then when life is more affordable, parents may be able to take over.

If they start when their child is born, they can put aside £142 a month, and at the age of 18, their offspring could have enough money to buy a property of their own. If they can’t spare quite so much, they can put aside £115 a month, and with a small amount of admin, and no cash of their own, by the age of 25, the next generation might be able to afford their first home.

The trick is to invest this money in a Junior ISA. These have far more potential to grow over the long term than cash, so for 18 years it will be super-charging the property deposit. By choosing a JISA, not only does it grow completely free of tax, but it’s tied up until the child is 18, so it can’t be frittered away over the years. 

There are also JISAs with no fees, so more of this money can be working harder.

If a parent is saving a smaller sum for longer, after the age of 18, the JISA will roll into an adult ISA. From here, their offspring can transfer their full Lifetime ISA allowance into a LISA each year. At the moment, that’s £4,000 a year, and the government will top it up by 25% - which is up to £1,000. The proceeds of a LISA can then be spent on a first property.”

We assumed typical long-term growth of 5% for stock market investments and 4% for property.

The average first time buyer property costs £241,502. In 18-years’ time, growing at 4% a year, it could cost £495,556, and in 25 years it could cost £655,380.

We’re aiming for a 10% deposit.

If you invested £142 a month into a JISA for 18 years at 5%, you could end up with £49,793 – enough for a deposit.

If you paid £115 a month into a JISA for 18 years at 5%, and then on maturity stopped paying in, let it roll into an adult ISA, and simply moved £4,000 of it into a LISA each year – topped up by the government to £5,000 – after 25 years you’d have £65,772 across your ISA and LISA – enough for a deposit.

If you’re sceptical that investments tend to grow faster than house prices on average, average growth over the past 25 years should help. The average annual growth on a global tracker fund over this full period has been 7.58%. Average annual house price growth, meanwhile, has been 5.56%. 

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