The Bank of Mum and Dad

The price of stepping on to the property ladder has seen a shift in the traditional way of buying first properties.

According to a Legal & General, parents are now one of the largest lenders in the UK. In 2018, when parents helped their children out, the average contribution was around £18,000. In 2019 this increased to over £24,000.

It is thought that parents contributed over £6 billion in 2019 alone towards the property market on behalf of their children. This figure places them in the lenders top ten!

This is substantially higher than government schemes such as ‘help to buy’. 2019 say approximately 20% of all purchases supported by the bank of mum & dad!

Where does the money come from?

It seems that parents are riding their retirement pots and assets to help their children. The money parents had in store for their care in retirement is being spent earlier than anticipated, namely cash savings, ISAs, home equity and pensions. No doubt parents (or some of them) may be concerned that they may not have sufficient to live on in retirement.

What can parents do to help?

They can make a gift, guarantee a mortgage, buy in their name or jointly (i.e. buy equity), or invest and protect by a declaration of trust deed.

Accountants can advise on any tax implications of gifting – there could well be some repercussions.

Buying in the names of the parents whether solely or jointly doesn’t necessarily solve the ‘getting on the ladder’ problem. Guaranteeing a mortgage might seem like a millstone.

How can parents protect a house deposit contribution?

If you are providing your child (or anyone else) with money for a deposit (whether or not they are buying with their partner or friend), the money provided can be protected (in the event they split up and sell) with a declaration of trust, or deed of trust.

The document can confirm to whom the money was provided – and the fact that it is reflected against a proportion of the purchased property. When the property is sold, your contribution will earn a percentage of the sale proceeds.

It's always best to secure professional advice before handing over money regardless of the circumstances, particularly if you propose to raise capital through an equity plan against an existing property.

John Davies
28/2/2020

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