This is the thing….some people seem only able to think about this in terms of the debt interest. Of course no-one likes the significant interest and fact they will pay much more than they borrowed back. To some degree though, this a red herring if not looked at in context of the alternatives that could be done with the money.
Yes, you will pay debt interest. Yes, in some ways it is like going up a tax bracket…although of course you only remain in the higher bracket if and when earning above the threshold. BUT, the crucial thing is to see it in context of other expenditure.
Someone renting as a single person or young couple in many areas of the country will be paying well well over £1k per month for a small flat. They might be saving for a deposit, but with high rents, even their tiny property, which might also mean large communing costs, might mean they save at best a few hundred each month. With other costs and the life of a young person, by 30 many have only accumulated a few £k or perhaps the amounts needed to get onto a help to buy scheme in a cheaper area of the country. They might not be paying debt interest, but at the point of starting a family, many of these will still be in rented accommodation. Needing a bigger home for kids, resent rise even more, often earnings take a dip or childcare costs are high snd the capacity to save is even less. The house deposit recedes into the distance as a hope, even for lots of decent earning graduates. So yes, they dint pay the 9% month in and month out, but lots also don’t get on the property ladder, or if they do, their minimum deposit keeps them in their starter d flat well beyond when it’s suitable. So the parents have enabled them to have more in their pocket on a monthly basis due to paying Uni fees, but the crucial thing is that the building of the deposit is still interminably slow and not enough.
What difference does that £50k make at maybe 27 or 28? Someone is probably 3 or 4 years into their job. They have an idea of where their lives will be and possibly who with. They have saved a tiny bit and they are finding it hard to save more because rents are so high. They can buy a small property for £275k. Their salary means they could have it if they buy with their partner but they can’t get it as they don’t have the deposit. They calculate it will take 10 years to save it….and what if house prices rise faster than wages? It will be longer still. BUT if the parents then gift the £50k it can happen. Yes, mortgage payments will still be high, but they will have housing security and a foot on the ladder. And then for the next 6 years they live in the flat, paying their mortgage and their student loans which add an extra hundred quid to the monthly outgoings. And their flat creeps up in value.
Then at 34 it’s time for a family. They can stay in their flat, or because they’ve gained equity and had some pay rises, they can move to a house. It might even be possible for one of them to drop down to 4 days a week for a couple of years. They will be continued student loan repayments, but a bit less whilst earning less.
This person is better off than the person who continually had an extra £100 per month because they weren’t paying a student loan, but who never managed to buy, because that £100 a month just never accumulated enough to build the deposit.
When families can give the fees and a £50k or more deposit, we’ll brillliant…of course 2 handouts is nicer and more effective than 1. But many middling and doing well families can scrape together a few tens of thousands as a gift …and that’s quite a sacrifice. It’s a lot of money, given families might still be paying their own mortgages or supporting younger kids or simply not have huge savings of their own. So for the vast majority, it really is an either/or situation and a choice of where the money is most effective is relevant.
A young adult getting £50k from their family for either Uni fees or for housing is extremely fortunate. Some people start to see this as entirely usual and an expectation and actually small fry, because in light of hosue prices £50k doesn’t buy a huge chunk. But that deposit doesn’t have to pay for 50% of a house for it to be worthwhile. Even most from very affluent backgrounds expect to take a mortgage and to be paying a sizeable chunk each month, especially in the early days. Those looking at having tiny ir no mortgages will be looking at parental gifts or inheritance if several hundred £k, not the £60k student fees.
The key is that house deposit. It’s a sum which most young graduates would take many many years to save even when on excellent graduate salaries (which most aren’t) and even without student loans. Those who say use the money for fees seem to think their offspring will quickly amass the vast amount needed for a deposit and the fact the money was spent on Uni fees instead won’t be a detriment.
My question to those thinking if that plan, is exactly how and by when do you imagine your graduate child will have amassed their house deposit if you and no-one else gifts them any money? At what rate will they be able to save and how much will they need and how long will it take?
And if people start then referring to other pots of me ones they can draw on, well the goal palsy’s are changing, because this thread is about having money for either/or Uni fees or housing.