Family Lenders Become Financially Savvy
In 2018 more people are reliant on close family and friends to help fund their property purchases. In fact 27%, up from 25% in 2017, of UK purchases were funded by friends and family with a value of over £5.7 billion. When this sector of housing lenders is becoming so strong, it is not surprising to hear that this lender is also becoming extremely business savvy.
In an attempt to ensure the money they offer their children and family members is used appropriately, the Bank of Mum and Dad (BoMaD) are setting clear and precise rules according to Equity Release Advisor, Key.
In particular, 20% of BoMaD lenders enforce transparent terms and conditions as to how the recipients spend the money.
Around half of the over 55-year-olds that would help their grown up children grasp a foothold on the property ladder were adamant that the money be spent wisely.
Over a third of respondents would use an official mortgage lender type meeting before parting with their money. A number also insisted that their children consult a financial adviser to look at their finances, outgoings, debt and savings before giving the money away.
Despite the instinctive impulse to help your own child, 78% of respondents that had helped fund their child’s property purchase were anxious that they would be vulnerable and exposed to financial trouble in later life.
Will Hale, CEO at Key said: “The Bank of Mum and Dad is firmly established as a part of the mainstream UK lending market and more and more parents are banking on helping children if they can afford to.
“However, as with any other lender, they have to set limits on how much they can afford to lend and on what the money is used for.
“Stipulating that children should receive financial advice is a sensible move as good advice is key to making sensible financial decisions.
“That applies to the Bank of Mum and Dad itself as they should not lend money without considering the short, medium and long-term financial implications for themselves.”
As this sector of the mortgage market continues to grow, it is reassuring that more stipulations are being placed on the money that it loaned or given to their younger family members. However, with the population ageing, it is a concern that this money may be offered to the detriment of the lenders.
Is the housing market too reliant of the bank of mum and dad? Should more be done to ensure young people are able to finance a mortgage without placing their relatives in financial difficulty? What would happen if the bank of mum and dad were unable to help?