It can be tough buying your first property, and it is no surprise that many first-time buyers turn to their parents for help. Research suggests that this year the so-called Bank of Mum and Dad will pay out more than ever before. As many as one in four property transactions in the UK is now funded by parental help, which equates to around £6.5bn in loans. Amazingly, this makes the Bank of Mum and Dad equivalent to the country’s ninth biggest mortgage lender.
Not only is the Bank of Mum and Dad helping to get young people onto the property ladder, they are helping pay the rent too. Recent research estimates that nine per cent of all UK renters are reliant on some kind of financial help from their parents.
Here are five things for families to consider when it comes to the Bank of Mum and Dad.
Loan or gift?
When kids have one idea and parents have another, disputes can arise. Make sure you all sit down together and flesh out the terms of the agreement, just as you would with somebody you didn’t know.
Think about Tax
It is important to be fully aware of the possible tax implications of being named on the deeds of a property bought with a child. You can discuss tax matters with us to find out where you stand.
Keep the Future in Mind
What does Frank Sinatra say in That’s Life? ‘You’re riding high in April, shot down in May’. Financial hardship can strike when you least expect it, perhaps through redundancy or ill health. It is vital that parents accurately calculate what they can afford even if money became tight.
House Price Fluctuations
Parents might have to sell a property in the event of a housing market downturn. If the property is in negative equity, they may not see their money returned when they expected.
Arguments over money aren’t much fun, but they can happen when large sums are involved. Disputes over whether money needs to be repaid, or over what time period, can cause friction. Parents should also consider what would happen if their child forms a new relationship or an existing one breaks down. Could there be an argument over how much of the house is owned by each party?
One final thought. Speaking to The Guardian earlier this year, Nigel Wilson, the chief executive of Legal & General said: “The intergenerational inequality that creates the demand for parental funding continues to widen – younger people today don’t have the same opportunities that the baby boomers had, including affordable housing , defined benefit pensions and free university education.
“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.
“The UK is experiencing a supply-side crisis in housing – we are simply not building enough houses. We need to build more homes for the young, old and families alike, more quickly and cost effectively.”
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