Empty Nest – Empty Wallet

The Bank of Mum and Dad set to finance a quarter of UK mortgage payments in this year – but are there alternative ways to support offspring that deliver a financial upside, asks Richard Balaes of AAG

The 'Bank of Mum and Dad' is now a major player in Britain's housing market, helping to fund a quarter of all mortgage transactions, new figures suggest. So crucial has this funding route become to the property market, that it now ranks among the top ten lending sources for property purchases in the UK earning its own name – BOMAD. We now live in a world where it’s possible for four generations to exist within a family. As UK demographics change, wealth is increasingly being transferred between generations during lifetimes.

With house prices continuing to rise, parents and grandparents can help their younger relatives save for a deposit and take that first step on the property ladder. However with life expectancy rates rising and retirement funding being stretched further, is it sensible to consider alternatives to gifting?

Seeing a child or grandchild buy their first home can be very satisfying, but with wages stagnating and house prices staying high, they are increasingly likely to need financial help. Traditionally parents and grandparents have assisted with home-buying for younger relatives by helping with a deposit or by contributing to monthly mortgage payments or even applying for a mortgage jointly. But how can parents best support their offspring, whilst keeping their savings cash and financial plans for the future intact?

What if gifting cash isn’t an option?

With the introduction of the extra 3% Stamp duty land tax (SDLT) on second homes since 1st April 2016 and the rising cost of living, more conventional options may prove costly and unattractive.

Luckily, the mortgage market is changing and we are working hard to find solutions for the next generation which means it’s still possible to help young relatives buy their home whilst keeping keep hold of savings. Prudent options include:

• Providing extra mortgage security in the form of a secured deposit account. In theory, this allows savings to be ‘used’ as a deposit for the purchase but without having to gift the money or be on the mortgage application. The saving is ‘held’ for a period of time and could attract interest that is returned after a specified period (as long as the mortgage payments have been maintained by the borrower). This option also allows you to ‘recycle’ the help for another family member when the deposit is returned.
• Joint mortgage applications without the need to be registered on the property deeds. This option helps to boost up the borrowing capacity for the younger relative as earnings will be taken into consideration by the lender. This potentially means a lesser deposit might be required. Both these options allow for avoidance of gift wealth and could potentially eliminate the additional 3% SDLT.

Affordability is still a central consideration when applying for a mortgage, as the borrower(s) will need a certain amount of income to support the mortgage regardless. Lender’s terms and conditions and lending criteria will still need to be satisfied for all options.

For more information on AAG mortgages call 0207 016 6767 or visit www.aag.co.uk