How the Bank of Mum & Dad joined the UK’s top lenders

Bank of Mum & Dad join UK's top lenders

 

First time buyers increasingly turn to parents for help.

In 2017, UK parents are predicted to provide £6.5 billion of funding to help their children buy a home. This staggering amount is an increase of 30% from 2016 figures.

Legal & General’s report on the Bank of Mum & Dad (BOMAD) has been widely publicised and its findings are indeed quite remarkable.

*BOMAD funding is equivalent to the UK’s ninth biggest mortgage lender.

*62% of under 35s have had help from their parents to buy their home.

*Almost 300,000 property purchases will be supported by BOMAD this year.

*25% of all property transactions will involve BOMAD this year.

The reasons for such heavy reliance on BOMAD are well known: rising house prices and slowing wage growth in combination with a shortage of homes to buy. Prices rose 7.4% in 2016 and in January this year the average cost of a house or flat stood at £218,255.

So it’s no wonder that parents and children alike see the Bank of Mum & Dad as the solution.

Key issues to consider before lending/borrowing

Don’t assume that just because you love your parents/children dearly everything will be hunky dory. When significant sums of money are involved, simple misunderstandings can turn into brooding resentment. The last thing you want is for a generous gift to end up souring family relationships.

Use this checklist to make sure everyone knows where they stand:

Put it in writing. Whatever you agree between you, make sure it’s written down in black and white in language that everyone understands. If there are any disagreements in future it will help to avoid arguments over who said what.
Is the money to be a loan or a gift? If a loan, how much are the repayments and is any interest due? The Legal & General report found that in 56% of cases the money was given as a gift, 21% were interest-free loans, and only 2% had interest attached.
Is anyone else involved in the property purchase i.e. a spouse/partner? If the relationship breaks down in future and the property is sold, it could mean they benefit from the gift/loan. This may not be a problem for you. If it is, set out the terms of the funding clearly and what you want to happen in this instance.
If you are the parent, have you thought through the financial implications for the future? Many people underestimate how much money they will need for retirement and for long-term care if it’s needed. And, if you have more than one child, will you give financial help to all of them? Legal & General found 34% of parents gave help to just one of their children while 40% helped all of them equally and 11% helped all of them but with different amounts.
Tell your conveyancer as soon as possible. If money for the deposit is being gifted, your conveyancer will need to carry out stringent ID checks to comply with money laundering regulations. They will also need to see bank statements for all parties. Get your documentation together at the start so you don’t delay the purchase.

At PM Property Lawyers we are increasingly seeing the Bank of Mum & Dad involved in property purchases and it’s a trend we expect to continue. We are always happy to help if you have any questions. Just call us on 0114 249 6926 or email info@pmpl.co.uk.

 

The full Legal & General report is online here.

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