The Bank of Mum and Dad is supporting half of young buyers to get on the ladder, as property prices remain out of reach for many, especially in London.
The Bank of Mum and Dad now funds one in two house purchases among under-35s, according to Legal & General, where 56% of first-time buyers aged under 35 received financial support from their parents to help them step on the housing ladder.
Of course, family dynamics could impact your ability to borrow from your parents but in fact, there has never been a better time for parents to put their hands in their pockets. It’s never been more affordable, and will ultimately save you a considerable amount of money in both the short and long term compared with paying extortionate London rents.
Many home buying hopefuls looking to expedite the process of saving for a deposit on a new home often look to their parents for the money, providing they can muster up the nerve to ask them in the first place!
Even first-time homebuyers with a deposit in hand sometimes are unprepared for other expenses when they arise. For example, lenders might attach conditions to mortgage approval that could require paying off another debt, such as a credit card or a car loan, or addressing another problem that arose when running a credit check. Even furnishing a property, be-it curtains or a tv, can quickly add up!
Getting financial help from parents when buying a home can be a quick solution, but convincing them to help is rarely easy. Every family is different and features its own dynamics. It would be easy to say that all parents with the means would like to help their children buy a home, but that's not always the case. It takes a bit of effort to convince your parents to give you money and help you on your journey.
Withdrawing From the BOMAD
Before asking parents for money, there are some basic questions to ask yourself first. First, do you have reason to believe your parents have the money to give? Parents don't always share the details of their finances with their children—even their adult children. If your parents appear as if they are struggling to make ends meet, asking them to assist is most likely to make them feel bad because they have no option but to say no. Use common sense with this one.
Secondly, if you are in a relationship, do you and your spouse or partner plan on asking both sets of parents? Is one set of parents more financially comfortable than the other? If only one set of parents can afford to help and then does, will the other set of parents feel uncomfortable? Maybe both sets of parents can afford to help, but they don't agree on whether or not it is appropriate. Be prepared for the impact this transaction can have on relationships.
Family peace is important to consider because borrowing money can impact how your in-laws and other family members get along.
Third, are you asking for a gift, or are you planning on paying back the money? The lender will consider money from a relative to be a gift, but this question is about how you plan to handle the transaction with your parents. If they'll expect to be paid back, be realistic about what you can afford to borrow and how quickly you can afford to repay it. If you choose to pay back the gift, you can arrange to do so out of the proceeds should you sell the home down the road.
Finally, why should they help you? Most parents will want to help, but many also want their children to earn their independence and work for such major purchases. Think about your own personal situation, your parents' personal situation, and why it would be in their interest to help you. They're going to ask, so be prepared with no answer.
Reasons for Parents to Help BUYING YOUR NEW HOME
Some parents really want their children to own a home. Parents who are homeowners themselves are even more likely to want to see their children become homeowners. Consider some other reasons parents will want to help:
They feel empowered when children ask for help—whether it is in the form of money or anything else. Parents derive personal satisfaction from knowing they still can make a difference in their adult children's lives. Parents love you, and if they can be a part of your success, then they are successful too.
Parents looking forward to having grandchildren may believe it is easier to raise children in a home rather than an apartment. After all, homeownership is the Great British dream, and parents want to see their grandchildren live in a secure family home.
Parents want to lead children to their next level of success and not wait for a will to be divided. Your parents may know how hard it was for them to buy their first home, and they want to make it easier on you.
There are tax benefits. Tax laws allow parents to give cash gifts to their children up to certain amounts without paying a gift tax. Consult a tax accountant to fully take advantage of this.
A gift to a child or grandchild can make a lasting difference, not only for the next generation but for future generations, creating a lasting legacy.
When It Is Time to Ask
Once you've decided to ask your parents for help and understand why it could be in their best interest, consider some tips for how best to go about it.
Ask your parents for money in person; don't do it over the phone. This isn't always possible if parents live a long way away, but the gist of this advice is to not be flippant about the request. If the meeting can't be in person, arrange a time to talk over a video conferencing app.
Be prequalified by a lender. Be ready to show your parents that you are not all talk but you are action. You have taken the steps to get an Agreement in Principle (AIP) from a lender. If the lender has faith in your ability, your parents are more likely to have faith as well.
Discuss with your parents the various Government buying schemes available to you to reduce the upfront deposit. With the Help to Buy Equity Loan, deposits need to be just 5% of the property purchase price. Affordability to turbo-charged with the 40% equity available at 0% APR for 5 years. With a deeper understanding on the market and purchase process, your parents will see you are serious and prepared.
Ask your parents to look at homes with you. Your parents can help you to make the right decision. They might even have great suggestions for you based on their own experiences, and they'll feel like they are needed for more than just their money.
Explain your financial needs. As a couple, you might earn a high income, but pressing demands might make it difficult to save. If interest rates are favourable and prices attractive, now might be the time to buy.
If you’d like more advice on gifted deposits or loans, we have experts on hand who can advise you on the benefits and pitfalls to watch out for. Supporting the next generation of homeowners can literally change individuals lives and create a lasting legacy for the gift giver.
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