The Bank of Mum & Dad Now in the Top 10 of Lenders
With the average first-time buyer requiring a deposit of £26,000 and the average annual salary being £27,600, it is no surprise that first-time buyers are getting older (the average age has increased from 30 to 33) and the number of people buying a property on their own is decreasing (from 29% in 1994/95 to 14% in 2014/15). More people are also now buying in couples – this has increased from 63% to 80% in the same time period. Parents are predicted to lend £6.5bn to their children this year, making them one of the top ten biggest mortgage lenders in the UK. The total number of first-time buyers has decreased from 857,000 in 1994/1995 to 564,000 10 years later.
Parents are predicted to lend on average £21,600 this year in comparison to the £17,500 lent to their children a year ago. This makes up over 80% of the deposit that the average first-time buyer will use when purchasing their property. 298,000 mortgages will be granted to buyers who have had deposit funds provided by their parents. Nearly 80% of parental funding goes to buyers under 30 – effectively spelling the end of home ownership to purchasers under 30 unless they have access to family money.
As with any type of informal arrangements, it is important that the parties fully understand the basis upon which those funds are made available. They may and intend that the advance is a gift therefore having no future control over that money, the property purchased or the repayment of the sum advanced. If the child is buying with a partner, that partner, unless ring-fenced, may be entitled to some of mum and dads money in the event of a separation. The parties need to carefully consider if the advance should be protected, either by the purchasers holding the advance in trust or perhaps treating it as a formal loan. This loan could be with or without interest and could be secured by a charge by a property (usually as a second charge, with restrictions on the title). Whatever is the chosen method, the parties should have a full and frank discussion as early in the transaction as possible and relay their decision to their solicitor.