By Julian Sampson
Legal & General have recently released a new report on the impact of parental assistance for children acquiring their first homes (and in some cases, second movers too).
This excellent report contains some surprising statistics, the most dramatic of all is that, " the Bank of Mum and Dad" will be involved in 25% of all mortgage transactions in 2016. This accumulated lending and investment would make the "Bank" a Top 10 lender, with over £5bn of loans each year at an average loan size of £17,500.
L&G aren’t the only ones to target this market. Barclays have launched their Family Springboard mortgage. This essentially enables a borrower to borrow up to 100% of their purchase price provided the Bank of Mum and Dad deploys a deposit equivalent into a Helpful Start Account. While the risk for Barclays (and others who will inevitably follow) is starker, the use of deposits as collateral isn’t new, and we can be comforted that this financial engineering is already a well established concept in Australia where La Trobe Financial, a specialist and innovative lender, has been pioneering the Parent to Child (P2C™) loan for some time.
We have seen a marked rise in enquiries from the Bank of Mum and Dad and it is an area that needs careful balance of legal skills in property, financial services, credit, trust and tax. TWM have brought these together to provide a Bank of Mum and Dad service. Whether or not we undertake a client’s conveyancing, we can advise on the most appropriate way to protect these funds - either as an asset backed loan, an ownership interest in the property, or a simple unsecured loan agreement.
It is also important (and one reason why it is critical to get any lending documentation prepared by a specialist) that the appropriate clauses are included to ensure no parameters are breached with the Financial Conduct Authority, who regulate lending to home owners. It is better to be explicit in addressing these and other concerns than leave it to chance and evidence. Our advice doesn’t just look at structuring when the loan or investment is made, but also if it needs to be recovered. It is rare for the Bank of Mum and Dad to do this with their child, but when a third party (like the main lender, or another creditor) gets involved, it is critical to ensure that Mum and Dad’s priority is preserved.
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