3 May 2017
CALLING UPON THE BANK OF MUM AND DAD TO BUY YOUR FIRST HOME
PARENTS ARE PREDICTED TO LEND MORE THAN £6.5BN THIS YEAR TO HELP THEIR CHILDREN GET ON THE HOUSING LADDER, ACCORDING TO LEGAL & GENERAL. THIS IS DOWN TO THE HUGE GAP BETWEEN INCOMES AND PROPERTY PRICES, AND THE DIFFICULTY IN SAVING FOR A DEPOSIT.
The ideal way to help is with the deposit as the bigger the down payment, the cheaper the mortgage rate. If parents have spare savings, the easiest way is to gift these to the children to put towards their deposit. However, the downside is that this cash has to be a gift or the lender will factor the repayments into its affordability calculations, meaning the child will get a smaller mortgage.
With parents now involved in more than a quarter of all UK property transactions, it is important that you consider carefully the best way of assisting your children. Give away too much money now and you may find yourself short of cash in retirement, becoming a burden on the children you were trying to help in the first instance.
Parents who wish to maintain control over their savings may consider alternatives to simply handing them over, such as the Barclays Family Springboard mortgage or the Family Building Society Family Mortgage, where savings are offset against the mortgage as security but the parents get them back at a later date.
Parents should seek independent advice as getting the correct legal documentation in place is crucial, particularly if one set of parents is providing support to a young couple. Parents will want to protect their deposit gift if the couple split up so that it is returned to the parents and not split between the two parties.