The best ways to use the Bank of Mum and Dad
If you’re looking for a step onto the property ladder but don’t have a big enough deposit, you might decide to ask your parents for help. This is known as the “Bank of Mum and Dad” or BoMaD.
Last year, research from Legal & General found that the BoMaD funds one in two house purchases among under-35s, and there are lots of new and innovative mortgage products now available on the market to suit it.
Here are the newest options available to first-time buyers and home movers faced with affordability challenges and some top tips when it comes to the traditional BoMaD.
Market Innovations: The past few years have seen a variety of pioneering mortgage products enter the market, most of which are targeted towards first-time buyers.
These new applications work to digitise the home buying journey, and when it comes to the BoMaD, go a step further in supporting parents, other relatives, and friends who wish to help a loved one buy a house, while at the same time protecting their own financial interest.
One of the newest lenders, Generation Home, has launched several mortgage innovations that support the BoMaD notion while giving more options, power and visibility to borrowers and their benefactors, including a ‘Deposit
Booster’ that allows friends and relatives to co-invest in a property, with functionality to protect the benefactor’s financial security, avoid second home ownership surcharges and preserve first-time buyer stamp duty benefits.
It also offer an “Income Booster” feature, which works to solve the affordability challenge. The product has been known to lift borrowing capacity by 66 per cent and, compared to other family support products, incentivises family members by allowing them to build up an equity stake in the home.
There is a broad range of other DIY mortgage products on the market today, including Market Mortgage, Barclays Springboard and a Joint Borrower sole proprietor mortgage, so it’s important to take the time to seek expert advice.
The Traditional BoMaD: Family disputes over borrowed money happen more often than you might think, so it’s important to make sure that all parties know where they stand before any money changes hands.
When it comes to the traditional BoMaD, here are four top tips to consider:
■ Have your ID at the ready. You will need to prove that you are who you say you are and your parents will need to do the exact same thing. So make sure you have the right proof of identification, and be aware that some solicitors will not accept photocopied versions.
■ Make sure your bank statements are in order. When money is being gifted, lenders will embark on an anti-money laundering journey to check that all transactions are above board. BoMaD will be asked to provide an audit trail for their funds which includes checking the bank statements of all parties to confirm that the money in question was earned legitimately.
■ Prove that the money is a gift. Lenders will ask for written consent to confirm the money is a gift and declare that the gifter has no personal interest or stake in the property.
■ Understand what a gifted deposit means. It’s important that the BoMaD understands that once money has been gifted, they no longer have rights to it and they also have no rights over the property.