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Mum and Dad – UK’s 10th largest mortgage lender

Rocketing house prices over the past decade mean parents are contributing more than ever to help their children onto the property ladder.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Quiz question: which of the following ‘institutions’ loaned more for UK property purchases last year?

TSB Bank; Bank of Ireland; Skipton Building Society; Clydesdale Bank or the Bank of Mum and Dad (BoMaD).

Okay, you’ve probably guessed the correct answer; it’s the Bank of Mum and Dad. This ever-growing financial powerhouse contributed over £5.7 billion to help their children get one foot on the housing ladder in 2018. This would rank them at number 10 on the biggest lenders, if they were providing mortgages.

A few statistics about BoMaD

Legal & General recently did some research into the BoMaD and estimated the following:

  • Lending from the Bank of Mum and Dad will add up to £6.3 billion in 2019 – up from just over £5.7 billion last year (nearly 10%)
  • Over 259,400 property purchases will be supported by the Bank of Mum and Dad in 2019
  • The average contribution of friends and family will be £24,100 (£31,000 in London)
  • The value of properties purchased with the Bank of Mum and Dad will be nearly £70 billion

Housing crisis for first time buyers?

It’s inescapable that prices have risen over the past decades, making it difficult for young people to buy their first property. The average UK property price for a first home has increased 39% since 2008 and the average first time buyer is two years older than a decade previously.

The crippling twin forces of spiralling house prices and stagnant wage growth for younger people over the past decade have meant that generous parents feel a compulsion to help out.

Santander recently conducted a survey of potential first-time buyers and found that over two-thirds said they were unlikely to be able to afford a property unless they received a deposit from their parents.

Discover more about LISAs

The crumb of comfort?

Recently, it would seem that conditions are turning more in favour of first-time buyers. UK house price growth has slowed to just 3.3% in 2018; the weakest it’s been since 2013. And despite soaring prices in London over the past decade, things are improving in the capital too with house prices falling 1.9% in the year to March 2019.

Meanwhile wage growth in the UK has reached an 11-year high which will hopefully ease pressure on affordability.

Give your generosity a boost

If you’re helping your child save towards a first home and want your money to go a little further, there are government initiatives which you might be interested in.

One of our favourites is the Lifetime ISA which offers a great way for adults aged between 18 and 39 to save towards their first home or later life.

Here’s how it works:

  • Put in up to £4,000 each tax year before your 50th birthday (the LISA must have been opened before your 40th birthday)
  • Get a 25% government bonus (up to £1,000 each year) on any contributions
  • Withdraw money tax free when used to buy your first home up to £450,000 (using a mortgage) or after age 60

Although parents can’t contribute to the LISA directly, they can gift the money to the child who can make the contribution. Remember, if you’re gifting money to a child this will be a gift for inheritance tax purposes so ensure you are familiar with the rules.

The LISA is a great way to save towards a first home but there are a couple of factors that you – and your child – need to be aware of. Firstly, if they withdraw the money from a LISA before age 60 and it’s not for an eligible first property purchase, your child will pay a 25% government withdrawal charge on any money they withdraw. This means they could get back less than was put in.

They also need to have had the LISA open for at least 12 months from the date of the first payment before withdrawing it towards a first home purchase. Tax rules can change and benefits depend on individual circumstances.

Discover more about LISAs

This article isn’t personal advice. If you’re not sure an investment is right for your circumstances please take advice. Investments rise and fall in value, so an investor could make a loss.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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