If mum and dad were an actual bank it would be the 9th biggest lender. According to a UK national mortgage advice bureau, over 80% of parents financially help their children in some way. Almost 60% of that is as a gift, 20% as a no interest loan and 5% as a loan with interest (no information is given for the other 15%). Which means the bank of mum and dad sponsors over a quarter of the funds used in the current UK housing market.
The pandemic changed everything, with parents suddenly needing to help their children with financial support, as jobs and hours were reduced or disappeared completely. Research, however, has shown that the dramatic rise in the cost of living this year means parents now think their assistance will be called upon even more, because of rising bills to help out with rent; food and utilities.
In addition to this, these last two years has fundamentally changed the way families are thinking about the future, in relation to retirement and inheritance options. A huge increase in enquiries to equity release firms, shows the reasons for the enquiries are to release funds to support their families, in these almost endless difficult times.
If you are thinking of helping out your family, to get them on the mortgage ladder, be aware that mortgage lenders prefer to see the money given as a gift, because the money does not need to be paid back. Mortgage lenders will need to see a letter from the parents stating how much is being given and confirming that it is gifted. If the money is going to be loaned, the mortgage lender will take into account, the repayment figures to your parents, when working out how much of a mortgage will be possible, to ensure you are not overstretched financially.
The other rapidly popular option for buyers is to get a Guarantor Mortgage. This is where a family members income, can act as the guarantor on your mortgage. Be warned that this does mean that, if you fall behind on payments, your guarantor will have to make them on your behalf. When applying via this route, the guarantors own financial commitments are assessed, to ensure they are able to afford both.