There are huge lenders in the mortgage market around the United Kingdom, with high-street names competing fiercely with one another for potential business. One of the largest current lenders may well surprise you, however, as rather than a large financial institution it is the bank of mum and dad which sits at 11th in the list of largest mortgage lenders in the UK.
Parents and family members are set to lend more than £6bn in 2019, which amounts to a higher amount in mortgage pay-outs than well-known brands such as the Co-Operative Bank and Skipton Building Society. With deposits becoming ever-increasingly difficult to amass, many people are now counting on their relatives to help them take that first step onto the property ladder; recent research from Legal & General and Cebr has found that nearly 20% of all property transactions are now aided by parents and grandparents.
Those lucky enough to be able to tap into this valuable resource will be aided predominantly by cash gifts, with some releasing the equity in their homes in order to help their children (16%).
Nigel Wilson, Group Chief Executive at Legal & General, says: “The Bank of Mum and Dad continues to be the ‘iceberg’ mortgage lender beneath the surface of our housing market – all but invisible yet exerting a massive influence, funding purchases across the country and helping people to defy the economics of affordability and realise their housing dreams.”
If you are thinking of using the bank of mum and dad, then there are a few considerations to take into account:
Banks and building societies will accept a deposit, or part thereof, that has been gifted to you – some may require confirmation in writing that the money is indeed a true gift.
If cash is gifted to you then this may be subject to Inheritance Tax (IHT) if the gift giver is deceased within seven years of the gift.
Inheritance limits are £3,000 per year, and previous years’ allowances may be utilised before IHT comes into play. For example, two parents could gift £18,000 with no IHT due as long as they had not gifted anything in the previous three years.
If the money is a loan, then this will need to be declared to your potential mortgage provider detailing repayments, interest, timescales and caveats.
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