Much has been written about the so-called ‘Bank of Mum and Dad’ in recent years – a period that has seen a large growth in the amount of parents and grandparents helping their offspring on to the property ladder – 2016 has seen £5bn leant in this way already.
Every year 300,000 people receive financial help to be able to purchase a home – in most cases (80%) it is the parents who are finding the cash, with other family members making up the other 20%, however, a survey issued by Legal and General this week suggests that 27% of UK parents would even consider funding their friend’s children, or even a relative strangers’, if they saw a good investment return.
It would appear that dinner part talk among the Baby Boomer generation is diversifying and mortgage experts are beginning to recognise and interesting trend emerging. With interest rates on traditional savings accounts so low, it would appear more imaginative ways of investment are being discussed as the cheese and biscuits are being passed around.
Peer-to-peer lending, where people invest relatively small amounts in the buy-to-let market, or to enable seed funding for start-up businesses, is also becoming more mainstream – however mums and dads (or their friends) need to be aware that without the protection provided by the Financial Services Regulation, there could be significant risks involved, especially as there are more products now available from traditional lenders designed to help first time buyers.
In early May we saw a new ‘Springboard Mortgage’ product unveiled, which is essentially an assisted 100% mortgage for the purchaser. The idea is that the ‘child’ takes the mortgage, with the parent or helper (it doesn’t have to be a family member) putting 10% in a linked bank account for a minimum of three years which accrues interest at 1.5% over the bank of England base rate for 36 months. At the end of that period, and providing the mortgage repayments have been made as scheduled, the 10% can be repaid.
For those with parents able to provide this level of assistance, low interest rate home loans could make a big difference and bring forward tomorrow’s demand into today’s market.
If you are a first time buyer looking to purchase a property, or a parent looking at the best way to help your children buy their first home, why not call Steve Padgham at The Financial Planning Group on 020 8614 4782, or e-mail firstname.lastname@example.org. He’d be delighted to help.