Last week I saw a headline in one the national papers that made me chuckle and had something serious to say about the financial environment my generation find themselves in – the mark of a good news story. It was declaring the rise of the “Bank of BAE” – younger people relying on having a partner to get on the property ladder (BAE, if you didn’t know, meaning “before anyone else”, or your significant other).
It was reporting research from high-street lender Halifax, which found that almost half of the 18-to-35-year-olds the bank surveyed said they have to buy a home with the help of a partner, while more than one in ten said that not being able to buy with someone else was a barrier to getting on the property ladder. You want your dream home? You better find a mate.
This follows some other, frankly depressing, stats from mortgage broker L&C, which found that 7 per cent of people have stayed in an unhappy relationship simply to get their foot on to the property ladder. Such is the desperate plight of the first-time buyer in 2017.
Of course, these “eight-out-ten-cats” should always be taken with a pinch of salt, but I can certainly identify with Halifax’s research (although, having just celebrated my first wedding anniversary, not L&C’s. I promise).
My wife and I, both in our 30s, have just bought our first home and could not have managed it without each other. She is a freelancer with just two years’ worth of tax returns, and was reliant on my steady income as an employee for us to secure a mortgage. My pitiful level of savings would never have been enough to cover a deposit, stamp duty and the thousands of pounds of other expenses we incurred in the home-buying process without the addition of her separate, chunkier stash.
The average house price across the UK is now £223,000, according to Land Registry data – meaning first-time buyers need to find more than £23,000 for a 10 per cent deposit, and up to £4,000 to cover stamp duty and legal costs to buy the average home. But that masks the regional variation – in London, for example, a 10 per cent deposit on the average-priced home would be £48,000, and stamp duty and legal costs could exceed £14,000.
So, the Bank of BAE is fast-becoming a necessity for would-be first-time buyers. My wife and I got hitched before we took a four-legged step on to the property ladder, but there are more and more people doing so unmarried.
Research carried out by insurer Royal London earlier this year found that the number of “cohabiting” couples has risen by a third over the past decade or so, and now one in ten adults are now living with a partner unmarried. And by doing so, they are shut out from a huge range of financial benefits for the simple reason that they haven’t walked down the aisle.
The most obvious is Marriage Allowance, which can save lower earners £230 in tax this year, and can be backdated to the previous two tax years allowing you to save as much as £662.
But there are others that leave unmarried couples missing out on tax breaks potentially worth tens of thousands of pounds.
You can pass on your wealth to your spouse or civil partner free of inheritance tax, and inherit their £325,000 tax-free allowance. This allows married couples and civil partnerships to pass on as much as £650,000 to their heirs tax free. And if you and your spouse’s estate includes your home, you could pass on an additional £100,000 this year, rising to £175,000 by 2020 individually, meaning married couples can pass on £850,000 this year and as much as £1m by 2020.
And unmarried couples? Well, they can’t inherit their partner’s unused allowance, and assets don’t transfer to your partner tax-free – so only £425,000 can be inherited free of 40 per cent tax. We’ve calculated that if you were in cohabiting relationship and your partner died leaving you with £500,000, you’d pay £30,000 in inheritance tax. If you were married, you’d be able to inherit the lot tax free.
There’s a host of other missed perks. Unmarried couples miss out on inheriting state pension – often women who don’t have a complete National Insurance record – that could cost them £2,600 a year. You can’t inherit your partner’s tax-free Isa allowance. And unmarried couples can’t transfer over assets to their partner as an ‘irrevocable gift’ without incurring capital gains tax.
Now, I’m not suggesting every first-time buyer needs to get married before they work together to get on the property ladder. But the structure of a whole host of tax and pension benefits do not yet acknowledge the growing group of people who entwine their lives and finances without tying the knot.
If you’re planning a financial future with a partner, and going hand-in-hand to buy your first home, you can’t afford to ignore this.
Gareth Shaw is head of Which? Money Online