April 24, 2024
Full article
The ‘bank of mum and dad’ has now become the tenth biggest mortgage lender in the UK, as young buyers are increasingly relying on financial support from their parents to get onto the housing ladder.
According to new research from insurer Legal and General in association with Cebr, this year alone, parents are expected to lend £6.5 billion, contributing to more than 298,000 mortgages and accounting for 26% of all property transactions. This is a 30 per cent increase on the £5 billion loaned in 2016.
With house price increases far outstripping growth in average wages, first time buyers are struggling to save a big enough deposit to qualify for a mortgage loan and get a foot in the door without parental assistance.
The country-wide average of borrowing from the bank of mum and dad currently stands at £21,600, with London much higher at a staggering £29,400. Of those buyers that receive help from family and friends, 57 per cent receive it in the form of a gift, 18 per cent were given it as a loan with no interest and five per cent as a loan with interest.
House prices rose by 5.8% in the year to February, with the average home now costing £218,000 according to data from the Office of National Statistics. Figures show that buyers are now expected to pay 7.6 times their annual earning when purchasing a home which is more than double the 3.6 time earnings they would have had to pay in 1997.
Matthew Gray, Managing Director of Property Services commented:
“Demand for ownership of one’s home remains high, particularly with first time buyers who are working tirelessly to save up appropriate deposit levels to enable them to get their first foot on the property ladder.
“Income levels have remained relatively static over the last few years whilst the cost of living has crept up, all of which impacts on the ability of the first time buyer to save appropriate levels of a deposit. Alternative means are therefore considered where the option of tapping into the bank of mum and dad can be attractive to those who are fortunate enough to have parents that are in a position to help.
“In all instances it is advisable to seek advice form an expert such as an estate agent, solicitor or mortgage advisor.”
Laura King, Associate & Head of Private Client stated:
“More and more parents are helping their children to get on to the property ladder by gifting a deposit to them, perhaps, without considering the potential tax implications of doing so.
“Parents who wish to gift a deposit for a property to their child should be aware that if they do not survive for a period of 7 years from the date of the gift, the value of that gift will be included within their estate for Inheritance Tax purposes. It is possible, however, to plan ahead by using the annual gift allowance (£3,000 per person, per tax year), which means that each parent could gift to their child £3,000 per year with no tax implications. If the gift allowance hasn’t been used in the previous tax year, this can be carried forward making it possible for parents to gift £12,000 in total to their child in a single tax year without any tax consequences. As the value of most gifts is above this threshold, consideration should be given as to any potential Inheritance Tax consequences. It is also important that the details of the gift are confirmed in writing to prove that the parents own no interest in the property and are giving the money without expecting it back.
“In addition, when a child gets married, parents can gift £5,000 to that child, which is another allowance available on top of the allowance mentioned above.
“Alternatively, some parents may wish to loan the money to their child. In this scenario, it is important to have a formal agreement drawn up which details whether the loan should bear interest, the terms of the loan and whether any form of security should be taken to secure the debt.
“So whilst the bank of mum and dad is becoming an increasingly opular lender, it’s worth bearing in mind that gifting an amount of money isn’t always as simple as transferring a payment into a bank account.”
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For More Information Contact:
Matthew Gray
Mobile: 07730 0010153
Direct Dial: 0131 516 5367
Email: mgray@gilsongray.co.uk
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For More Information Contact:
Laura King
Mobile: 07841 920 095
Direct Dial: 0131 516 5359
Email:lking@gilsongray.co.uk
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The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.
