Is the Bank of Mum and Dad a good thing?

For prospective homeowners who rely on the Bank of Mum and Dad, it is important the support does not go too far and put the customer at risk when they eventually stand on their own feet.

That’s the verdict of some of the mortgage brokers that Mortgage Introducer reached out to, to gather their thoughts on an increasingly popular financial crutch.

Bank of Mum and Dad reliance

Steven Hargreaves, mortgage and protection adviser at The Mortgage Co, said many first-time buyers have had to turn to the Bank of Mum and Dad over the last five years due to the increasing price of properties across the country, as well as the associated expenses.

“The disparity between incomes and the price of property has become such that the average house price in the UK is around £288,000, and a 10% deposit is over £28,000, which for anybody takes some saving, alongside the legal fees and survey fees,” he said.

Additionally, with the cost of renting a property being so high and rents rising further still, Hargreaves said it puts further financial pressure on first-time buyers to try and save.

“Having the Bank of Mum and Dad seems almost essential if first-time buyers have already had to move out and are paying rent - it is marginally easier if they are still at home as it tends to provide a slightly higher disposable income to save for a deposit,” he said.

Stephen Perkins (pictured left), managing director at Yellow Brick Mortgages, agreed with Hargreaves that the Bank of Mum and Dad helping with deposits is required for the majority of first-time buyer purchases.

“It is less common for the help to include being party to the mortgage, though these guarantor-like mortgages such as joint borrower sole proprietor (JBSP) can be very useful for sole applicants, who can afford the monthly payments but fall short on lender affordability calculations,” he said.

Usually, Perkins said, the plan is the borrower’s income will improve to be able to afford the mortgage on their own, or they may meet a partner who goes on the mortgage with them at a later point.

As long as the parents are fully aware of the implications, he added that this can be a significant solution for many customers.

Does the Bank of Mum and Dead create inequality?

While Scott Taylor-Barr (pictured right), financial adviser at Barnsdale Financial Management, agreed that the Bank of Mum and Dad has been an important source of deposits for many first-time buyers as property prices have marched upward, he said there are some drawbacks.

“The Bank of Mum and Dad not only creates a bigger gulf in inequality between those whose parents can afford to do this and those who cannot, but it also puts a huge amount of pressure on the parents, who can feel that if they do not provide their children with a £20,000 or £30,000 leg-up on to the property ladder, that they are somehow bad parents,” he said.

Add this to the support that many will have given to their children through university and the fact that most will have multiple children to assist in this way, Taylor-Barr said, and very quickly you are asking parents to have a huge income.

If these parents do not have a considerable income, then Taylor-Barr said the only means to support their children into homeownership will likely be through forgoing their own financial security and taking further borrowing on their own homes, or raiding retirement funds.

What are your views on the Bank of Mum and Dad? Let us know in the comment section below.