‘Bank of Mum & Dad’ 10th biggest lender

The Bank Of Mum & Dad has become the 10th biggest mortgage lender in the UK – putting up an estimated £6.5 billion this year.

Research by Legal & General has found parents are involved in 26% of all UK property transactions as their children increasingly turn to them for help in getting their first foot on the property ladder.

First time buyer

The L&G research suggests that parents will provide the deposits for more than 298,000 mortgages this year.

The average first time buyer needs a deposit of around £26,000 say lenders.  They are around 30 years old and borrow an average of £132,100 for their first home.

Funding

But L&G says 79% of parental funding goes to buyers under 30.  The average amount parents lend their children is £21,600 – up from £17,500 a year ago.

While mortgage rates have been pushed to record low levels because of competition between lenders, the size of the deposit required to secure the mortgage has gone up and is now higher than that required before the financial crisis of 2008.

Generosity

Nigel Wilson, chief executive of L&G, said: “Parents want to help their kids get on in life, and the Bank of Mum and Dad is a testament to their generosity, but it is also a symptom of our broken housing market.”

Mortgage experts say the cash should be in the form of a gift, rather than a loan, so it doesn’t impact on the borrower’s overall affordability rating.

Springboard

Top mortgage broker, Mark Harris, suggests alternative methods of supplying the funds like the Springboard Mortgage from Barclays.

This mortgage, and others like it, allows children to buy their new home without a deposit, providing their parents are prepared to hand over 10% of the property’s value to be kept in a special savings account for three years.  The money is returned to the parents at the end of that time, providing the borrowers keep up their payments on the mortgage.

Guarantor

Finance expert Charlotte Nelson, of Moneyfacts.co.uk, said: “Traditionally rates with guarantor mortgages tend to be slightly lower than ordinary first-time buyer products. This is in part due to the risk being spread across the guarantor as well as the main borrower. 

“However, with the mortgage market more competitive, there are definitely lower standard rates on the market, so borrowers would be wise to shop around.  A guarantor mortgage lets either a parent or relative assure a mortgage in the event the dependent fails to make repayments.

“For first-time buyers having a guarantor can often mean that they able to get on the property ladder and borrow more than the bank normally would.”