Money Makeover


24th July 2015

As featured in
The Telegraph

Money Makeover: Peter Woodhouse is about to retire with almost half a million pounds in property and cash. But how can he help his adult son and young daughter buy their first home?

Father-of-two Peter Woodhouse shares an all-too familiar worry with parents of his generation: how – and if – his children will get on the property ladder.

It's a headache for the millions of "baby boomers" whose children are reaching adulthood just as housing and rents have never been higher relative to earnings.

While fifty-somethings like Mr Woodhouse have benefited from the property boom, they also face funding their children later into life. The average first-time buyer deposit is now 25,000, already 4pc higher than last year.

There's an unusual twist to 58-year-old Mr Woodhouse's quandary. While his grown-up son Darren, 37, wants to buy a home right away, his daughter Keziah is just seven years old.

"My daughter is the one I really worry about," said Mr Woodhouse, who is a single parent. "Property prices are only going to go up – so how do I help her when she eventually moves out?"

Mr Woodhouse lives in Redhill, Surrey. Prices in the South East have increased by 42pc in the past 11 years. By the time Keziah reaches adulthood in another 11 years, the same level of growth would bring a house worth 100,000 today to 141,630.

Mr Woodhouse wants to treat both siblings equally but fears that Keziah will need more financial help than Darren due to property price inflation.

Thanks to years of disciplined saving, through his job as a technician for the NHS, Mr Woodhouse has more than 150,000 in cash savings to play with, as well as a 220,000 mortgage-free flat.

'With 250,000 how can I help my children, aged seven and 37, buy property?'

Retiring with a healthy pensionPeter Woodhouse, left, is retiring in two years with a healthy pension pot. But he also wants to help his children, Darren and Keziah, buy property

Jonothan McColgan, director of Combined Financial Strategies:

Now is the time to be giving his children's future some thought. But Mr Woodhouse also needs to be sure that any financial plan gives him enough money to live off when he changes jobs and fully retires, as well as leaving enough money for Darren and Keziah.

Mr Woodhouse says that he needs 1,400 to live on each month. When he retires, his pension will give him an income from age 60 of at least 1,000 per month, so there is a small shortfall. The good news is that when he gets his state pension at 66 – whether that's the full pension or a reduced amount – this should more than cover his income needs.

Until then, Mr Woodhouse should keep an emergency fund of 23,000 to cover the income shortfall in case he struggles to get a paid position in his new career as a teaching assistant.

The best way to help his son Darren on to the property ladder could be to consider writing off an 88,000 sum he owes from a loan you made years ago. Currently Darren repays Mr Woodhouse 1,000 a month, but he already have enough income to live off - and this money would help Darren save toward a deposit.

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Assets Approximate value
Property: 2-bedroom flat in Redhill 220,000
Cash Isas and savings 150,000 across cash Isas, savings accounts and NS&I premium bonds
Stocks and Shares Isa 70,000 in tracker funds
Self invested pension (Sipp) 35,000 in tracker funds

In addition to his NHS pension, which will guarantee a salary of around 13,000 when he retires in two years' time, he has a 35,000 self-invested personal pension, held in "tracker funds", which mimic movements in the stock market.

Mr Woodhouse insists he'll "never retire" and plans a change of career once he takes his pension with the NHS. His is a "final salary" pension - typically the most generous type of work pension, where retirees receive a guaranteed income calculated in relation to previous earnings and years of service.

"I've always been interested in becoming a teaching assistant," Mr Woodhouse said, "I'd like to work in a primary school. It's not like anything I've done before but I don't want to ever leave the workplace."

He says the family "live a very simple life" with the main expenses being an annual holiday to Somerset, as well as Keziah's trampolining and Irish dancing lessons.

What are the best ways to help both children? He's now considering investing in a buy-to-let property to eventually gift to his daughter, or coming up with a suitable investment portfolio to generate future capital enough for both.

Darren and Keziah face buying property in a market that has balloonedDarren and Keziah are 30 years apart but both face buying property in a market that has ballooned in recent years

As for Mr Woodhouse's daughter Keziah, he has considered investing in a buy-to-let property which could eventually become her home.

But he should aim to stay mortgage-free if possible – ruling out buy-to-let.

Mortgages seem cheap now but the best rates might not be available to him because of his age. Borrowing heavily to invest in a rental property at this stage in life just adds unnecessary risk, for example if rent falls below mortgage costs.

Mr Woodhouse should instead use his pension to provide his daughter with a fantastic deposit for a house – or as a way of helping her pay off a future mortgage.

Let's assume he wants to give her some money when she reaches her mid-thirties, roughly the same age as Darren is now.

Mr Woodhouse should use any excess income he has to invest into his Sipp. Assuming he has a teaching assistant job, Mr Woodhouse will be able to pay 500 a month into his pension, which is currently worth 35,000. At age 66 he will have achieved a pension fund of around 80,000 which could remain invested until he dies.

He could keep this pension untouched and nominate his daughter to inherit the money. If he died before age 75, she would receive this as a tax-free lump sum. If he dies after 75, she would pay her marginal rate of tax on withdrawals.

This strategy means Mr Woodhouse would still be able to access the pension should he need it during his lifetime and he wouldn't need to take the additional retirement risk of a buy-to-let mortgage.