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Investing in property on behalf of your child is the latest craze to rise out of the current economic climate, surveys have revealed.
In a report released by thisismoney.co.uk, they discussed how hundreds of parents are now choosing to take advantage of low house prices in order to help their children get onto the property ladder – some as soon as they go to university.
The Bank of Mum and Dad is alive and well, with estate agents reporting that parents are taking advantage of lower house prices to buy a home for their children.
According to Lloyds Banking Group, a fifth of parents give their children money to help them on to the housing ladder - often when they go away to university. Many have been encouraged to invest in property as a result of paltry interest rates on cash deposits.
But research by online property search engine propertylive.co.uk has found that parents may do better to pay for a two-bedroom flat rather than the usual one-bedroom property.
It found that in 17 out of 20 university towns and cities, including Birmingham, Exeter, Leeds, Liverpool, Reading and Sheffield, the annual income earnt from letting the second bedroom in a two-bedroom flat more than outweighed the additional mortgage repayments.
The calculations assume the buyer has a 15% cash deposit and a three-year fixed-rate repayment mortgage at 5.87%.
For example, on average a one-bedroom flat in Leeds costs £95,500 while a two-bedroom flat costs £137,500. Typical rent for a room in Leeds is £3,678 a year. With the difference in annual mortgage payments between the one and two-bedroom properties being £2,713, this gives £965 profit a year.
'Amid the gloom in the market, there are some great deals for young people wanting to get on the property ladder,' says Charles Smailes, chairman of Propertylive. 'By going for a two-bedroom rather than a onebedroom property, parents should see good returns on their investment.'
An additional benefit of letting a room is that the Revenue allows homeowners to earn £4,250 in rent a year tax-free when letting a furnished room in their home.
Other property search websites include primelocation.com and findaproperty.com, which let househunters scour the market for sales by postcode.
Last month, Lloyds launched its Lend a Hand mortgage deal for first-time buyers. This enables parents to put cash towards a deposit, but with the option to get that money back if the home rises in value.