Paul Demarco from ESPC Mortgages looks at how the "bank of mum and dad" is funding house purchases. 

A bank of mum and dad

The so-called bank of mum and dad is where parents, other family members and friends provide the money to help a first time buyer get on the property market. The system has become the equivalent of the 11th biggest mortgage lender in the UK, lending over £6 billion in 2019, according to research from Legal and General.

Advantages of the bank of mum and dad

Some of the advantages of borrowing from the bank of mum and dad include low or no interest rates and long repayment periods, and so it is no surprise that parents have become major players in the housing market. It is safe to say that parents play a vital role in helping young people to take their early steps on to the housing ladder.

Gifted deposit versus investment

The majority of people will go down the route of a gifted deposit where the buyer's mum and dad will give a certain deposit as a gift. However, there are other ways in which the parents' donation can actually keep on earning interest for them.

A deposit can initially be gifted to provide a minimum of 10% of the property's price as security. The deposit will then be invested by their lender and the interest will be added to the amount of gifted deposit. The donor will eventually receive their money back with interest as long as the mortgage repayments are kept up. 

ESPC Mortgages

As independent mortgages adviser, ESPC Mortgages can help with all aspects of understanding your budget, applying for a mortgage and dealing with the relevant insurance requirements. Pop in for a no obligation chat with myself or another member of the team at our Edinburgh Information Centre or give us a call on 0131 253 2920.

The information contained in this article is provided in good faith. Whilst every care has been taken in the preparation of the information, no responsibility is accepted for any errors which, despite our precautions, it may contain.

The initial consultation with an adviser is free and without obligation. Thereafter, ESPC Mortgages charges for mortgage advice are usually £350 (£295 for first-time buyers). YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOANS SECURED AGAINST IT.

ESPC (UK) Ltd is an Appointed Representative of Lyncombe Consultants Ltd which is authorised and regulated by the Financial Conduct Authority.