The End of the Bank of Mum & Dad?

Lenders are introducing new rules that mean first-time home buyers cannot rely on the “Bank of Mum and Dad” to stump up most of the cash for their deposit.

The controversial new policy states that borrowers looking to get a mortgage at 90% loan-to-value must prove that no more than a quarter of their deposit was gifted to them. The rule does not apply to customers looking for deals at 85% loan-to-value or lower.

With around 40% of first-time buyers thought to have received financial help from family members last year, the change could affect significant numbers of potential homeowners. According to estate agency Savills, gifts and loans from parents to help their children onto the property ladder totalled £5bn last year.

Lenders have not commented on the reasons behind the rule but it comes as economic uncertainty has cast doubt on the future of Britain’s housing market. A number of lenders removed their highest loan-to-value deals after the pandemic hit amid fears that property prices could fall, pushing many homeowners into negative equity. Nationwide tripled the minimum deposit it required from borrowers from 5% to 15%, before reducing it to 10% when the government announced last month that stamp duty would be suspended.

Checking that buyers have saved money for their deposit themselves, rather than relying on their parents, is one way for banks to ensure they restrict lending to borrowers they consider to be less likely to experience problems in future paying back their debt.

Whilst a Nationwide spokesman said “This as a temporary measure which will remain under frequent review and fully gifted deposits are accepted on lending up to 85%”, the impact is thought to be significant as it will undermine most people’s understanding that they can and should be able to help their children get onto the housing ladder.

Articles on this website are offered only for general information and educational purposes. They are not offered as, and do not constitute, financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.

Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise.

You are now departing from the regulatory site of Finura. Finura is not responsible for the accuracy of the information contained within the linked site.

Source: Techlink

Other News

Age at which you can access your private pension plan raised

The British government has announced plans to raise the age at which pension pots can be accessed from 55 to 57.

Basic principles of inheritance tax

Inheritance tax (IHT) was introduced by the Finance Act 1986 to replace capital transfer tax and applies for transfers made on or after 18 March 1986.

Using Trusts as Part of an Inheritance Tax Planning Strategy

There is a common misconception that trusts are only used by the wealthy. However, they are accessible to all and can be a useful tool as part of a wider inheritance tax planning strategy. There are various reasons why a trust may be set up; some can be written into your Will and others can be set up independently. Here we explain what trusts are, what they do and the different types of trust available.