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The UK's Biggest Mortgage Lender - the Bank of Mum and Dad!

View profile for Richard Carter
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So at long last it is official, and confirms everything that lawyers acting for first time buyers over the past year have known – the UK’s biggest mortgage lender is the Bank of Mum and Dad! According to data and a survey from Legal & General, parents will help finance their children getting onto the property ladder in England and Wales to the tune of £5 billion in 2016. In a table of mortgage lenders this would mean the Bank of Mum and Dad would be top – they would finance 25% of all UK mortgage transaction values this year. The average financial assistance given by a parent to a child purchasing a property is £17,500 per purchase. The research from Legal & General shows that parents will provide deposits for more than 300,000 properties, purchased at a value of over £77 billion in 2016.

This trend is one that is very familiar to property lawyers acting on behalf of children purchasing a property. The lending criteria of most mortgage lenders means that mortgage offers, and the best rates of interest, can only be obtained where a substantial deposit (usually around 20%) is put down by a buyer. In the south east of England where prices are much higher than the national average this will mean a considerable deposit being required. “The difficulty that first time buyers face in the south east is that prices are rising faster than they can save deposits and therefore getting their foot onto the property ladder is increasingly difficult,” said Richard Carter, the Managing Partner and head of conveyancing at Martin Tolhurst Partnership Solicitors.

“Parents are often happy to help out either by using savings, or passing on inherited money that they have inherited from their own parents. Lenders require that the money provided by parents is gifted, rather than loaned, in order to satisfy the commercial mortgage lender’s criteria. This does create some issues for parents who should carefully consider the following: -

  • Is this money that they can afford to gift, and can they gift it on the basis that it will never be repaid?
  • Do the parents intend to gift it to both their child and their child’s partner? How would they feel if their child and that partner subsequently separated?
  • Should there be a further agreement between the parents and their child regarding the equity in the property so that in the event for example that the child and their partner separate it is their child who has the greatest share in the equity, thus protecting the investment that their parents have made by way of gift to their child.
  • Do the parents need to adjust their Will and leave more money to other children who have not had lifetime gifts for property purchase?

With there being no sign of mortgage lending criteria relaxing, nor house prices/affordability decreasing, we expect the Bank of Mum and Dad to remain the highest UK mortgage lender over the next year or two.”