Bank of mum and dad
Getting a mortgage with some financial support from family members
With average house prices increasing at a rate beyond wages, so called Bank of Mum and Dad mortgages are becoming more common.
For some people, especially first time buyers, assistance from family is the only way that they will be able to buy their dream home or even get on to the property ladder.
Of course, it isn’t an actual bank. After all, banks tend to make a profit!
The Bank of Mum and Dad is simply the name or phrase that represents parents who are helping their children financially.
If you are considering this approach, you are not alone.
There have been reports that the Bank of Mum and Dad is one of the biggest ‘lenders’ in the UK.
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This trend is set to continue as long as house prices inflation rises beyond wages and therefore mortgage affordability. For parents and grandparents who are homeowners, house price inflation can lead to greater equity in their homes. Releasing some of this equity could help their children on to the property ladder.
Why Choose Us?
There are many considerations when choosing someone to help you with your mortgage. Getting it right could save you thousands. During our initial consultation we will go through the process together and assess your needs. We offer a comprehensive range of products from across the market, which means we aren't limited to a smaller selection of products and can choose from thousands of available lenders.
20 Years Experience
Our wealth of experience across the industry means our knowledgeable advisors can give you advice you can trust.
No Offer, No Fee
We are so confident that we will find you the right mortgage, that we only ever charge when you receive a full agreement in principal. For most people this takes them forward to a successful home move.
Comprehensive Market Access
You won't be missing out on any great deals. We can access all of the mortgage products which are currently available and know how to find you the most suitable deal.
Bank of mum and dad mortgages
FAQ
How does the bank of mum and dad work?
There are usually two main ways that parents help their children –
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Using income to boost the mortgage amount
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Using capital or equity to boost the deposit amount
It’s also possible to use a combination of these
The right approach will depend on a number of factors around each person’s individual circumstances. There are pros and cons to each which need to be carefully considered before proceeding.
Income boost
By parents adding their income to a mortgage application, this could increase the mortgage amount made available to their children.Example of ways to achieve this include
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A joint mortgage application
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A guarantor mortgage
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A joint borrower, sole proprietor mortgage
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A joint borrower, sole owner mortgage
Income Boost – Things to Consider
In order for this approach to be possible, the lender will usually assess the parent’s affordability as well as the children’s. This means providing information like bank statements and proof of income etc, as with any other type of standard mortgage.
This means that a lender will also look at other debts including existing mortgages. Essentially, the parents will also need to meet the lender’s affordability criteria.
Another key factor can be age. Generally the lender will consider the parent’s age when looking at the maximum allowable term. This could mean a shorter term which could then increase the monthly payments for a capital and interest mortgage
Even though a higher mortgage is possible, the idea is usually for the children to comfortably afford the monthly payments on their own. This needs to be carefully considered before proceeding as the parents would be liable.
Deposit Boost
By parents providing or adding to their children’s deposit, this could increase the price range being considered. Examples of ways to achieve this include
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Using savings and/or investments to gift or loan
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Using savings as collateral
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Remortgaging to release equity
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Taking out a lifetime mortgage to release equity (over 55s)
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Using equity as collateral
One or a combination of these is usually acceptable.
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Deposit Boost – Things to Consider
In the case of a gift, a letter is usually required from the parents / grandparents. The wording may differ slightly depending on the lender, but they generally need to confirm that the gift is non refundable and there is no ongoing interest in the property.
In the case of a loan, the lender will need to know the full details. This will include the repayment terms and in particular, the monthly payment. It’s worth mentioning that although this may be possible, many lenders will not accept this scenario. It’s worth checking this before proceeding.
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It is possible to have a legal agreement or trust in place. This type of agreement usually states that there are no monthly payments or interest in the property, but the funds must be repaid on sale of the property. Again, this is possible, but many lenders may not accept this scenario so it’s best to make enquiries before proceeding.
Bank of mum and dad - Other Scenarios
There are other ways that parents could help their children such as –
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Regulated buy to let
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Student mortgages
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Family concessionary purchases
These options will usually still include providing assistance with income and/or capital. However, these scenarios can be quite specialist and not offered by many lenders.
In order to make sure you consider all of the options, speaking to a specialist broker with access to lenders from across the market might be worth considering.
Bank of mum and dad - What are the risks?
Income Boost Risks
In the case of adding income to a mortgage, the parent(s) will usually be liable for the loan. This means that if the children miss a payment, this could affect the parent’s credit score.In addition, taking on extra debt may affect the parent’s ability to take out further credit in the future.
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It’s worth considering taking insurance against loss of income for the children. Policies such as income protection and critical illness could be beneficial. This may be in place through an employer or can be taken independently.
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Deposit Boost Risk
In the case of providing capital, there are various risks to consider. If the plan is to release equity from the parent’s property, the risks are similar to those mentioned above in terms of taking out further debt. By using savings and investments, there could be opportunity cost. Were the funds intended for this purpose or were they for something else? Will this affect income in retirement? If these are concerns, perhaps using savings as collateral rather than a gift may be appropriate.
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In the case of having more than one child, will this affect the amount left to other siblings by way of inheritance? Will there be a potential inheritance tax liability? It might be a good idea to consider estate planning advice in addition to mortgage advice before proceeding.
How can a mortgage broker help?
Speaking with a specialist broker who has experience in dealing with Bank of Mum and Dad mortgages could help with making the right decisions. You need to consider all of the potential options and their impact before proceeding. A specialist broker will talk you through your options, point out the pros and cons and give you the information you need to make the right choices.