Last Updated on 5.8.16 by Gorvins
The first six months of 2016 has seen a 10% surge in the number of first time property buyers, despite the increase in house prices. The government’s 2014/15 home ownership housing survey shows that last year 27% of buyers relied on family or friends for support with a deposit, compared to twenty years ago when the amount of buyers utilising familial financial support was 21%.
An increasing amount of people are generating money for their first purchase by using inherited money; the predicted 2016 figure for parents gifting their children with money towards property is expected to be £5 billion. This is referred to as the bank of Mum and Dad. These figures translate into:
• Parents on average lend their children £17,500 or 7% of the average purchase price.
• Around 305,000 people will receive money from their parents to put towards a property.
• The ‘bank of Mum and Dad’ will be used not just first by time buyer’s mortgages, but in an estimated 25% of all mortgages.
• The market is dominated by the under-35s who make up 57% (the majority of first-time buyers) who had a loan or gift from family or friends.
Research from L&G and economics consultancy Centre has suggested that the bank of Mum and Dad will provide deposits for more than 300,000 mortgages, purchasing homes worth £77bn this year, making them effectively the tenth largest mortgage lender in this country.
Further still and perhaps more surprising is that one in eight purchases of buy to let properties in 2016 were purchased using a deposit given by parents from January-March this year.
It’s important to note that parents lending money to children or even acting as a mortgage lender need to be aware of factors affecting the purchase of a property. If parents gift a deposit or part fund a property purchase this will be classed as a ‘gifted deposit’ and will be subject to further checks to comply with anti-money laundering.
What’s more, parents lending children the entire value of the property will probably want some reassurance that they aren’t just going to cut and run with their money and so will, in effect, set a charge against the property, to both protect their investment but also ensure their children pay back the money as per a normal mortgage hence becoming the ‘bank of mum and dad’.
If you are purchasing a property in this way see our page for more information, it’s also important to speak to a legal team who are fully aware of this type of transaction. Call Gorvins on 0161 930 5117 or e-mail firstname.lastname@example.org for more information.