Bank of Mum of Dad becomes the 9th largest lender

20 June 2017

In regions like ours, where property prices have risen an average 7% in the last 12 months, it is little wonder that record numbers 25 to 34 year olds have returned to their parents’ home. According to data from Aviva, there are an estimated 1.23 million boomerang youngsters back in the family home.

“For this generation, many of whom work, it is not the monthly mortgage repayments that stop them from jumping on the property ladder, but the high deposits mortgage lenders insist upon,” notes Absolute Wealth Management’s Simon Harnaman.

“First-time buyers frequently have to fund a deposit of up to 17%; with the average price of a house costing £263,000 in the south west, finding more than £40,000 is out of the reach of many. It is little wonder that this generation of young people feel stymied, where their only hope is to turn to the Bank of Mum and Dad for assistance with their deposit.”

The Bank of Mum and Dad (BoMaD) has unsurprisingly become the ninth biggest mortgage lender. Recent research from Legal & General estimates that BoMaD will stump up £6.5 billion over the course of 2017 to make some 300,000 property purchases. But before you rush to offer your offspring a cash injection to purchase their first property there are few important considerations, cautions fellow Absolute Wealth Management director, Pete McBride.

“Firstly, you need to decide if you are ‘gifting’ this money to your child or whether you will be ‘loaning’ the money to them with a view to them repaying it, even it if is over a long-time scale,” says Pete. “What people often fail to realise is that their own estate can be affected by the inheritance tax liabilities of giving money to their children. Sadly, what might seem like a simple ‘family agreement’, needs to be formally agreed. At Absolute Wealth Management, we can assist you with advice on estate planning and your tax liabilities.”

Under the current annual tax allowance, everyone is legally allowed to give away up to £3,000 worth of gifts each year, tax free. “If you wish to gift more than this amount and you die within 7 years of making the gift, there is a scale of Inheritance Tax that would be applied to that gift, for example inheritance tax is charged at 40% on any gift given in the three years before you die,” remarks Pete.

“Our advice to anyone wanting to pave the way to house ownership for a family member is to call us to discuss the various options and ensure that everyone is clear about their own responsibilities and moreover, liabilities,” concludes Simon.

To book an appointment to discuss any issues relating to gifting money to children please call 0117 907 1965.   

Categories: Gifting money, Inheritance Tax