‘One of the UK’s biggest mortgage lenders’ is the Bank of Mum and Dad

A new survey has revealed that parents are spending so much helping their children to purchase their own homes that they are now one of the country’s largest lenders.

According to the study by Legal & General (L&G), the average parental contribution for homebuyers in 2019 is £24,100 – an increase of £6,000 on the previous year’s figures.

This means that parents are thought to have collectively given £6.3 billion to their children in the last year, which would make the ‘Bank of Mum and Dad’ the tenth biggest mortgage lender – outranking the official tenth largest mortgage lender Clydesdale Bank, which only lent £5 billion last year.

Thousands of UK homebuyers have become reliant on their parents to either get onto the housing ladder in the first place or move to a larger home, as the disparity between house prices and wage growth widens.

Of those surveyed, almost a fifth said they had already or would help a family member to buy a home, as many felt it was their responsibility to do so.

The poll of 1,600 parents found that more than half were using savings to fund their children’s home purchase. However, many others were withdrawing money from their pensions to help or were considering using equity release from their own homes.

As a result, 15 per cent admitted that they had to accept a lower standard of living in retirement, while more than a quarter were not confident that they had sufficient money for their retirement.

The transfer of money out of pensions could lead to tax being due if it is done outside of the pension freedom rules. Parents should also be aware that any gifts made could be subject to Inheritance Tax depending on when the gift is made.

Discretionary trusts are an increasingly popular way of helping children onto the property ladder whilst allowing parents to retain control and protection of the funds.

If you are considering lending money to your children for the purchase of a home, it is strongly advised that you seek financial and legal advice before doing so.

Rachael Verinder, Tax Partner at Milsted Langdon, said: “There are several important factors that should be considered when gifting or lending money to children, particularly when it comes to Inheritance Tax or when the money is being withdrawn from a pension.”

For expert advice on all tax issues, contact our team of tax specialists.

Posted in Left, News, Newswire.