The term “bank of mum and dad” refers to a situation where parents or family members provide financial assistance or loans to their adult children to help them with various expenses, particularly in relation to purchasing a property or funding education. It is a colloquial term that highlights the significant role parents play in financially supporting their children. The bank of mum and dad has become more important in recent years for first time buyers to get their feet on the first rung if the property buying ladder.
In the context of property purchases, the bank of mum and dad often refers to parents providing financial assistance to help their children with all or part of the deposit or to bridge the gap between the amount they can borrow from a traditional lender and the purchase price of the property. This assistance can come in the form of a gift, a loan or co-signing on a mortgage.
The bank of mum and dad has become increasingly prevalent in due to rising property prices and stricter lending criteria, making it more challenging for young adults to enter the property market without financial support. It is seen as a way for parents to help their children achieve homeownership or other financial goals.
However, it is important for both parties involved to have clear communication and legal agreements in place to avoid potential conflicts or misunderstandings. Seeking professional advice from financial advisors, mortgage brokers or solicitors can help ensure that all parties are protected and understand the implications of such financial arrangements, whether it be a gift or a loan.
It is also important to note that if you are obtaining a mortgage to purchase a property, the bank or building society will almost always require that the monies advanced from the so called bank of mum and dad are gifted as opposed to loaned. This is to ensure that the bank or building society’s security over the property is not affected by any third party agreements. You should check initially with your financial advisor or mortgage broker to ascertain the lender’s requirements.
If you are a first time buying looking to get on the property ladder and are looking for legal representation why not give one of Alexander JLO’s expert property lawyers a call on 020 7537 7000 or email quote@london-law.co.uk and see what we can do for you?
This blog was prepared by Alexander JLO’s property partner Matt Johnson. Matt has many years of experience of dealing with property work and specialises in new build and shared ownership properties. His profile on the independent Review Solicitor website and be found Here