Recent research by insurer Legal and General has revealed that the “Bank of Mum and Dad” is the UK’s tenth biggest mortgage lender. Soaring house prices, particularly in the south east, mean more and more first and second time buyers are relying on their parents either to provide a substantial deposit or assist with stamp duty costs.
In many cases parents are lending significant amounts of money. Equally, it is estimated that there is £400bn worth of inheritance, much of which will be put to helping new owners onto the housing ladder.
Making provision of a lifetime gift is a well established inheritance tax piece of advice. However for those parents who are helping with deposits - bridging the gap between mortgage-raising capacity - and purchase costs, beware.
Whilst we all do what we can for our children, assistance at the time of purchasing a property can go sour. This year we had a case where the parents had lent £70,000 into their daughter’s property. She subsequently met someone, got married and the parents wanted “their money back”. Unfortunately in the absence of any documentation or legal charge in their favour they simply had to watch as their soon to be ex-son-in-law benefitted from their investment.
Increasingly, parents who are investing in property for sons and daughters are becoming aware it is better to have some agreement in place than nothing. This might even run to a cohabitation agreement or in some cases pre-nuptial agreement.
Another area where the Bank of Mum and Dad is helping is the buy-to-let market. As many first time buyers are unable to afford even the simplest of starter flats, parents are stepping in and in some cases letting their properties to their children. In this situation it is important to have tenancy agreements in place to keep the transactions at arm’s length to ensure that any partners do not acquire any long term rights of occupation.
The whole issue of housing and the disparity between north and south will become a national issue with questions around whether home ownership is becoming something for the wealthy only.