Bank of Mum and Dad
THIS has been a recently discussed topic in the media when it comes to property being purchased with the aid of parents.
The Bank of Mum and Dad or BOMAD has become more common over recent years due to the lack of or difficulty in purchasing affordable homes for those wanting to get onto the property ladder.
With a definite housing stock shortage, this could be one of the reasons why fewer houses are available.
Government have made changes to alleviate the difficulties suffered by young buyers with things like a shift in the buy to let market with less stock being used for investment and also offering more incentives and schemes which help first time buyers getting onto the ladder like the recent change in stamp duty.
But currently, a more common aid in purchasing comes in the form of parents loaning or giving their children money towards their purchase.
The fact that this has become more popular is proof that buying has become more difficult for the younger generation.
The BBC recently reported that parents are “feeling the pinch” as in 2018, the average amount borrowed from BOMAD was £18,000, down from £21,600 in the previous year according to Legal and General financial services.
This still won’t stop more than one in four buyers being aided by family in their property purchase.
It is also reported that a large proportion (over 25 per cent) of these loans from BOMAD come attached with an interest rate on average of 4.3 per cent, payable by the children to the parents according to UOWN which is a crowdfunding survey platform.
So, what will this mean for our first-time buyers of the future?
Property has become more expensive and increasingly more difficult for all buyers to purchase, not just first time buyers.
Some people who have had help from parents will undoubtedly say that they wouldn’t have been able to afford the property they wanted, or even a property at all without the assistance given by BOMAD.
Hopefully there will be a shift in the future market where this will be less of an issue but it certainly won’t happen overnight.
There are still alternative options available in purchasing a property, should the BOMAD not be available.
Have a chat to us at Bennett Jones Partnership or even our independent financial advisor if you wanted to learn more about how you may help yourselves or your children in getting on the property ladder.