Recent research by Legal & General show that the amount of financial assistance being offered by parents last year to help with their property purchases reached £6.3 bn last year. This would make them the 10th largest mortgage lender if considered an official lender.
UK’s biggest mortgage lenders in 2018
1. Lloyds Banking Group £42.5bn
2. Nationwide £35.7bn
3. Royal Bank of Scotland £30.5bn
4. Santander UK £28.3bn
5. Barclays £23.1bn
6. HSBC Bank £21.5bn
7. Coventry Building Society £9.2bn
8. Yorkshire Building Society £8.7bn
9. Virgin Money £6.8bn
10. Clydesdale Bank £5bn
*Data from UK Finance, the trade body for UK banking and financial services
They calculated that the average loan or gift was £24,100 to help their children get onto the property ladder.
The Bank of Mum and Dad (Bomad) is formerly known as intergenerational giving and is predicted to continue to rise over the next 5 to 10 years as the younger generation have been priced out of the housing market.
While this is a great help to their offspring, Legal & General have expressed a concern that while changes to the pension marketplace have made it easier to gift money to their children, they said this could impact on the parent’s retirement standard of living.
The lender market has responded by introducing a number of products that shift the risk from younger borrowers to wealthier family members which in turn reduces the risk to the lenders.
The Lloyds Bank Lend a Hand mortgage provides 100 per cent mortgages to first-time buyers. To qualify, parents and other relatives must put the equivalent of 10 per cent of the mortgage loan into linked savings accounts, where their money will earn 2.5 per cent interest over three years.
The Family Building Society offers The Family Mortgage, enabling parents, grandparents and other family members to pool their savings or accumulated housing equity to help younger family members buy a first home or move to a larger one. In return for this additional security for up to 10 years, the homebuyer gets a 95 per cent mortgage at a lower rate than would otherwise be available in the market.
Nationwide has a family deposit mortgage that allows parents to borrow against the equity in their home and gift that money to a family member as a deposit on a home of their own, again with the Nationwide.
Alison Mitchell of RobMac said “We are seeing this type of scenario on a regular basis, particularly with the parents to whom we give financial advice about investments and pensions. This in turn allows us to offer advice to the children they are assisting, ensuring that everyone’s needs are met.
“This marketplace is continuing to develop and we are seeing new lender products being launched all the time to address it. As an independent adviser we have the benefit of being able to access all products from all lenders which means we can offer a range of options to our clients.”
If you would like to discuss any of the above please get in touch or if you would like to make an appointment then please click on the link.
