Buying property in East London…with the Bank of Mum and Dad
What is the Bank of Mum and Dad?
The Bank of Mum and Dad is an age-old phenomenon that has gained real momentum since the credit crunch, with parents and grandparents now lending grown-up children a total of approximately £8 billion every year.
The situation has come about as people in their twenties – potential first time buyers – find low interest rates working against their ability to save for a house deposit.
Parents also understand that the bigger deposit their son or daughter can put down, the smaller the mortgage. Smaller mortgage repayments allow homeowners to save for their next house when they’re ready to move somewhere larger.
Sometimes, it’s not just Mum and Dad who are helping out, but the government’s Help to Buy Scheme too. Parents may be helping their children to put together the amount needed to start a Help to Buy ISA (£1,600) or contribute to monthly savings.
In recent weeks, new figures have been released by Legal and General, indicating that parents are, on average, lending 17% less this year than in previous years, with the average amount loaned (or gifted) standing at £18,000, down from £21,600 last year.
However, the research also shows that more houses are being bought with parental funds than ever before, suggesting that the lower average figure is due to more families joining the trend, not that parents have less money to spare.
The figures also show that parents are helping out not just children in their twenties but even those in their forties.
What does using Bank of Mum and Dad money mean for house buyers?
If you’re buying property in East London (or anywhere else) with money gifted to you by your parents, it’s important to remember to let your conveyancer know. Conveyancers need to understand that any money your parents may have passed to you for help with your house purchase is indeed a gift and not a loan – loans have to be paid back and gifts do not.
While many families only enter into informal agreements and simply transfer funds between bank accounts, this is not always a good idea. To avoid difficulties during conveyancing (not to mention family discord in future!) it is a good idea to have a letter of consent drawn up, explaining that your parents are willingly gifting you the money. Your conveyancer will also need to see bank statements showing the date that the money was transferred.
This process can also be a good time for all parties to find out more about what it means to be giving or receiving a gift of a substantial sum of money, including the fact that the gifters will have no rights or say in how their money is used, once it’s been handed over.
Buy property in East London
At Dockleys, we’ve helped countless people to buy and sell property in East London, whether they’re going it alone, have help from their parents or are using a government Help To Buy ISA. To find out how we can help you realise your dream of owning property in the best place to live in London, get in touch today on 020 3363 4440.