The Bank of Mum And Dad
It is astonishing to discover that according to a new report by The Social Mobility Commission that 34% of first time property buyers are using loans or gifts from family members.
Legal & General recently asserted that last year the Bank of Mum and Dad was lending £5 billion a year to support children onto the housing ladder, lending an average £17,500 to them. This puts the Bank of Mum and Dad into the top ten of mortgage lenders in the UK. This is simply remarkable.
Whilst this is fantastic news for the third of children who benefit from their parents’ generosity, the Rt Hon Alan Milburn, chair of the Social Mobility Commission, recently said “The way the housing market is operating is exacerbating inequality and impeding social mobility.”
I’ve long held the view that the reason why house prices and rents are so high in the UK is simply down to economics. The law of supply and demand. Increase the stock of available properties in the UK so much that supply exceeds demand and then you will see falls in both house prices and rents. However this is very hard to achieve under the current system of housing and planning in the UK.
The Commission, which is an advisory public body, urged the Government to build three million homes over the next decade, a million of which should be constructed by the public sector. It added that to hit these targets, homes should be built on the Green Belt.
I think the Commission makes a very valid point. I am reliably informed that if you were to take an imaginary flight over the whole of the UK you would find that 93% of it is Green Belt. Surely a small reduction in the Green Belt would provide enough land to build three million homes?
Another source of new residential homes is the conversion of commercial properties into apartments under the government’s permitted development rights legislation which allows this practice. This makes eminent sense because I see a very likely reduction in the need for commercial property, particularly offices, as more and more people are now working from home and/or using their mobile devices on the move. It looks inevitable that demand for commercial property will fall in future years. There is a huge amount of empty commercial property throughout the UK already even in thriving cities like our own Milton Keynes.
Initiatives such as the government’s Help To Buy Scheme for first time buyers will help such people too.
So there is some hope for the two thirds of people who do not have the financial support of relatives to get onto the housing ladder.
If you are one of those parents or grandparents wanting to help children or grandchildren to buy their first homes, do think carefully about how to structure your financial support. There are many ways to do it but one of the most secure and tax efficient ways to do so is by setting up a trust, gifting money into it and the trust then lending the money supported by a second charge on the property. That way the lender, you, is effectively guaranteed repayment of the loan in the event of the borrower defaulting on mortgage repayment. This is one of a number of ways you can help your loved ones to buy their first home.
So if you are considering becoming the next Bank of Mum And Dad, do speak to us first to ensure that you structure the gift or loan in the right way in order to benefit both your relatives and you.