Harrogate Independent Mortgage Advisor – Inside Advice for Parents

Here at JAMortgage.co.uk, our experience has shown just how common it is for young people, and particularly first time buyers, to receive a leg up from parents or other family members to help with a property purchase.

We’re seeing more and more parents wanting to help their children to buy a home. Whilst this is great for their children, it’s really important that parents understand the implications of their financial help. It could have a big impact on their savings, retirement planning or even day-to-day lifestyle.

Should you have any questions or concerns about your mortgage, please don’t hesitate to contact me. I offer no-obligation, no charge for initial Zoom consultations for residents in Harrogate. Fancy a quick chat instead? Call FREE on 08000 141948.

How To Get On the Property Ladder Resources

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Bank of Mum and Dad now joined by the Bank of Son and Daughter – 2020 was a tough year for many sectors of the economy. For the housing market (and its participants) there is no exception. Many aspiring buyers are borrowing from parents to achieve their dreams of homeownership. Although not a new trend, it is a growing one.

According to research* , nearly one in four (23%) of house purchases will be backed by the Bank of Mum and Dad (BoMaD) this year (up 4% on 2019), with parents, family and friends gifting an average of £20,000 per purchase. It’s likely that BoMaD will be needed more than ever in the future, with 24% of buyers reporting they’re now more reliant on support from family and friends following the pandemic.

Overall BoMaD lending plummets

Despite the above picture, BoMaD is actually expected to lend far less to prospective homebuyers this year due to the temporary closure of the property market and the resulting fall in transactions. It’s expected that family and friends will lend £3.5bn to facilitate property purchases this year – little over half the £6.3bn forked out last year.

Children are returning the favour

With the coronavirus crisis also hitting older generations financially, research** suggests that, since 23 March, the ‘Bank of Son and Daughter’ has withdrawn an estimated £2.75bn from savings accounts to shore up parents struggling to make ends meet – an average of £700 per account

A balancing act

With the pandemic continuing to impact our finances, seeking advice has never been more important. Whether you are a parent or child, it’s only natural to want to help your loved ones, but it’s important to understand whether you can afford it and how much you can spare.

*Legal and General 2020 / **Direct Line Life Insurance 2020

Mortgage Help for Parents – The Bank of Mum and Dad

There are various ways parents can give financial help. There are many financial considerations when helping your loved ones onto the property ladder. Can you afford it? Will it affect your retirement plans? How can you minimise the possible impact of Inheritance Tax?

A financial gift is generally the first option parents consider when a child needs help to buy their home. In many ways, it’s the simplest. The parent gives their child a sum of money to act as a deposit to allow them to purchase. As long as the lender has written confirmation of this, and there is no expectation that the parent wants the money back then the process is complete.

Financial Gift Considerations For Helping Your Children in Harrogate

If your child is buying a property on their own, then a financial gift is fairly straightforward. However, if your child is taking out a mortgage with a friend or partner, then legal consideration should be made to who the gift was made to. It’s a good idea to speak to a solicitor about what you want to happen in the event of a relationship breakdown, to ensure your child retains the gift by formalising the arrangement with a contract or trust document. This simply recognises in law the rights of your child to retain the amount of the original gift in the event of a breakdown. This may take the form of creating a trust document called a “Deed of Trust”. Both parent and child should make a Will in the first part to recognize the gift, and in the event of the child dying the money could be returned to the parent.

Some considerations when making a financial gift are as follows:

Allows the widest possible choice of mortgage deals available
Lowers mortgage payments
May mean the purchase of a ‘better’ home
The only tax implication is if Mr and Mrs Smith do not live for seven years after the gift is made, as Inheritance Tax (IHT) may be payable if the estate exceeds the nil rate band at the time.

We’re sure you’ll agree there’s a lot to consider when helping a child onto the property ladder. At JAMortgage.co.uk, we’re here to help. Whether they are a first time buyer, moving-home, or looking to remortgage, I’m here to help you navigate the choices between standard variable rate a fixed rate and repayment or interest only mortgages through to savings advice and the perfect match for insurance products. Call FREE on 08000 141948 for impartial advice at no charge.