‘Bank Of Mum And Dad’ Loans Finance 25 Per Cent Of Mortgages In The UK In 2016

As Parents Become A Top Lender, Experts Urge Them To Share Wealth Wisely

03.05.2016

Kate Rawlings, Press Officer | 0114 274 4238

New research has suggested that the ‘bank of mum and dad’ will finance 25 per cent of all mortgages in the UK in 2016, promoting legal experts from law firm Irwin Mitchell, to call on parents to make sure they are protecting their investments.

According to the research by financial services group Cebr, parents will lend over £5 billion this year, purchasing homes worth £77 billion and providing deposits for over 300,000 mortgages.

The findings show that the average financial contribution from the bank of mum and dad's is £17,500 or 7 per cent of the average purchase price of a home, making parents as important as one of the UK's top 10 lenders.

The research shows that three-quarters of family-funded house purchases are financed by parents, with family friends and grandparents also contributing to make up the difference.

Family law expert at national law firm, Irwin Mitchell, Alison Hawes said ‘bank of mum and dad’ loans should come with a warning as parents need to protect their investments.

Expert Opinion
Imagine a house bought for a daughter by her parents, that her boyfriend moves in to. There is no clear agreement but he takes over the loan repayments to her Mum and Dad because he has good job and she gets made redundant. She tells him it is ‘our house’ and when they split up, because of the payments and what she said, he claims a percentage of the equity of the house even though it is in her name.

You can ask the partner who moves into a house you own to sign a deed of surrender meaning that even if they pay the gas bill from time to time, you have a legal document to show that it was never your intention to share the equity in the property whatever you might have said in the heat of the moment.

More and more people are relying on financial help from the bank of mum and dad to get on the property ladder but parents need to be aware of the risks and steps they can take to protect their families.

We’ve seen an increase in the number of parents who require a child to have a prenuptial agreement in place with their partner or spouse, before they will lend them money to get a foot on the property ladder.

It’s a sensible idea because parents want to protect their assets and investments, which may form part of an inheritance or retirement fund, in the unfortunate scenario of their offspring suffering a relationship breakdown.

It isn’t just prenuptial agreements that parents need to consider when helping their children get onto the property ladder.

They need to consider whether they can really afford to help in the long run, if they are fully aware of all of the terms and conditions on any mortgage they might be named on, as well as issues around owning second properties and tax.

While we all want to help and protect our children, taking legal advice from experts who can advise you on all of the implications, from prenups to stamp duty, can ensure the help you give your offspring now, doesn’t turn into a headache later down the line.
Alison Hawes, Partner