Parents ’10th biggest mortgage lender’

Parents '10th biggest mortgage lender'

The “Bank of Mum and Dad” is the 10th biggest UK mortgage lender as buyers increasingly rely on financial support from their parents, a report suggests.

Parents will lend £6.5bn this year, according to insurer Legal and General, and be involved in 26% of all UK property transactions.

This is up from the £5bn of lending estimated in L&G’s equivalent survey a year ago.

The average first-time buyer requires a deposit of about £26,000, lenders say.

Figures from the Council of Mortgage Lenders (CML) show that the average first-time buyer with a mortgage in the UK is 30 years old and borrows an average of £132,100.

‘Broken’ market

The L&G research suggests that parents will provide deposits for more than 298,000 mortgages.

Last year, it suggested that parental financial support made the Bank of Mum and Dad the equivalent of the 10th biggest UK mortgage lender, and this ranking has not changed.

The proportion of property transactions that they are involved in has also been relatively static from a year earlier – but parents’ gifts, loans or inheritance values have risen to an estimated average of £21,600 this year compared with £17,500 a year ago.

Some 79% of this parental funding goes to property buyers aged under 30, L&G claims.

This is despite a price war between mortgage lenders, which has pushed mortgage rates down to historically low levels. However, lenders typically require a larger deposit than was the case before the financial crisis.

Legal & General chief executive Nigel Wilson said: “Parents want to help their kids get on in life, and the Bank of Mum and Dad is a testament to their generosity, but it is also a symptom of our broken housing market.”

How life got tougher for first-time buyers
1994/952014/15
Average age3033
Single buyers29%14%
Couples buying together63%80%
Get help from family/friends21%27%
Used inherited money3%10%
Total first-time buyers857,000564,000
Source: English Housing Survey

Parents '10th biggest mortgage lender'

The research echoes the government’s own English Housing Survey which showed that, in 2015, some 27% of first-time buyers relied on friends or family for help with a deposit.

Some have reacted to the L&G survey on social media pointing out that the Bank of Mum and Dad is simply inherited wealth.

Others state their annoyance that such funding is only an option for some buyers, and should not be considered as a recognised source of mortgage deposits.

Elsewhere, Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Money from parents must really be a gift rather than a loan as far as mortgage lenders are concerned, so that it doesn’t impact the borrower’s affordability.

“Getting the correct legal documentation in place is also 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.

“Parents who wish to maintain control over their savings may consider alternatives to simply handing them over.”

Analysis: Simon Gompertz, personal finance correspondent

Some parents lend money to their children to help with a deposit, others manage to give them the cash outright.

Many grandparents are doing the same. Should they be worried about tax being due, inheritance tax in particular?

A gift escapes the tax if you live long enough.

“If they survive more than seven years, then it’s not subject to inheritance tax,” says Nimesh Shah, Tax Partner at accountants Blick Rothenberg.

But a loan doesn’t have the same tax-saving potential, he warns. It would still count as part of the giver’s estate.

And if the Bank of Mum and Dad demanded regular repayments, the mortgage lender might take fright and cut the maximum mortgage loan being offered.

“As long as they don’t require monthly payments and are prepared to confirm that to the lender, it won’t impact on the amount being lent,” says Ray Boulger from mortgage brokers, John Charcol.

Where can I afford to live?

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