What is Bank of Mum and Dad? Matt at Heron Financial explains all!
In conversation with… Matt at Heron Financial
The Bank of Mum and Dad (BOMAD) is fast becoming one of the UK’s biggest mortgage lenders, with its popularity only expected to increase in the coming years. While the term is now commonly used, especially in the first-time buyer market, many people are still not aware of how this financial institution works, so we sat down with Matt Coulson, Director of Heron Financial, an independent New Homes Specialist Mortgage Broker, to demystify the mortgage trend with advice on how to get onto the property ladder…
What is the Bank of Mum and Dad and how does it work?
Bank of Mum and Dad (BOMAD) is a term generally used when parents, or even grandparents, are helping a client make their first step onto the property ladder. The most popular way BOMAD can help is by gifting a deposit to assist with a mortgage application. BOMAD can help greatly to those looking to afford a larger property or to receive a better interest rate, so that they’re able to secure their forever home from the get-go. If you have a larger deposit, then you are more likely to get a more favourable rate.
One thing to be aware of is that lenders often need additional information relating to the gift or loan, so it is worth being prepared with this. When completing on your property purchase, your solicitor will request funds from the mortgage lender. Then they ask you to transfer your contribution of the deposit, alongside the additional gifted funds.
Countryside has a Bank of Mum and Dad Scheme to help first time buyers, if purchasers are being gifted 5% deposit or above, after completion, the person who gifted the money will receive £2,000 from Countryside as a thank you.
Do the funds need to come from my Mum or Dad?
Not always - lenders are becoming more flexible and intergenerational lending is becoming more common. Though most lenders need funds to come from a family member, be that an auntie, uncle, sibling, or grandparent, we are seeing some lenders offering mortgages to those who’ve been gifted funds by friends.
If I’ve been gifted money towards my deposit are there tax implications?
Whenever a gift is involved, the person gifting the funds should seek the appropriate professional advice. Given how common this situation has become, it is straightforward to find the right adviser to talk to and your Independent Financial Adviser can potentially point you in the right direction.
Are there any other ways parents can help their children buy their first home?
Yes – there are lots of ways. Guarantor mortgages, also known as Joint Borrower Sole Proprietor, essentially mean parents can be an applicant on a mortgage but not necessarily named as an owner on the property. This works by joining your mortgage application, adding your parent’s salary to the affordability calculators.
Equity release is another common way to help out for parents who already have a mortgage on their current property. They’d be able to look at something as straightforward as a re-mortgage, to release some funds to then gift to their children.
How do I ask a family member if they would be willing to gift me some money to boost my deposit?
We’d suggest a very honest initial conversation with your family members and involve them in the process from the beginning. Having a conversation with a financial advisor with them present, can help everyone to understand your options both with or without their support. It can help show them the effect of their potential involvement and the difference between you potentially living in your preferred area or having that additional bedroom.
None of my family members can afford to help me financially. Is there another way to buy my first home?
Yes, there are lots of ways. The good news is that we are beginning to see a whole variation of government-backed schemes and schemes being driven largely by private enterprises, such as lenders and builders which allow those with smaller deposits to buy.
The best starting point is to establish how much money you can pull together yourself – what is a realistic contribution – and then to know your current earnings and outgoings. If you have this information you should speak to an Independent Financial Advisor as soon as possible, as there may be a scheme out there that you are completely unaware of, where you’re well within your ability to buy.
At Countryside, we have a wide range of properties available perfect for first time buyers at our two north London developments, North West Quarter and New Avenue. Get in touch with our sales team today to explore your options. To find out more please visit: https://www.countrysidepartnerships.com/all-developments/london/north-west-quarter or https://www.countrysidepartnerships.com/all-developments/london/new-avenue or call one of our sales consultants today.