Over recent years the so-called Bank of Mum and Dad has been an increasingly popular way to help first time buyers get onto the property ladder. However, an article claiming that, “The Bank of Mum and Dad risks going out of business” appeared in the Financial Times last week. On the other hand, a report produced by Legal and General (L&G) suggests that what has become known as the Bank of Mum and Dad (aka Bomad) is still very active.
So, is Bomad at risk or not?
Given the low interest rates at present, whilst mortgage repayments may be affordable, average property price is still too high. And for many, they don’t have the necessary funds available to pay the deposit – which is why Bomad has played a very active part.
In their report L&G say that some 50,000 UK property transactions this year will be enabled by parents digging into their pension pots. A further 23,000 will be supported by annuity income and another 44,000 will be supported by parents releasing equity from their own home.
According to L&G around one in five of the over 55s who help their children on to the property ladder are doing so by accepting a lower standard of living for themselves and one in ten say they feel financially less secure as a result of doing so.
Whether or not the Bank of Mum and Dad is truly a risk is yet to be seen. However, there are a number of different ways in which parents can help their children (or even grandchildren) to get on to the property ladder, although for some parents giving away money too early can result in them not having adequate resources for themselves in the future. It is therefore vital that they fully consider their own requirements first before taking any action.
Any of the following options could be considered depending on the parents precise circumstances:
While this provides a summary of a few options which are available, like with any planning advice will be key.