We’re all familiar with the Bank of Mum and Dad (BOMAD) and the growing role they play in helping their children onto the housing ladder.
This role can also be reversed, however, and we’re seeing the Bank of Son and Daughter (BOSAD) step in and help their parents out by also gifting deposits.
Recent research from Legal and General (L&G) shows that gifted deposits from family members are expected to reach a record high of £9.2bn this year, climbing to £11.3bn by 2026.
While we usually think of parents or grandparents when it comes to gifting deposits, children can also do the same for their parents. Just like younger buyers, parents might also need some help piecing together the initial deposit or need to put down a larger deposit to help make the mortgage more affordable.
We are also seeing some borrowers become first-time buyers (FTBs) later in life. Separate research from L&G shows there was a 13% increase in the number of 56-65-year-olds searching for their first property in the first three months of the year, compared to the same period last year.
Given the desire by some to work later in life and delay retirement, getting on the housing ladder for the first time over the age of 50 can still be a viable option.
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These buyers might be looking to leave expensive or unsuitable rental properties behind, hoping for the security of owning their own home in retirement, and the BOSAD might be able to help.
Changing circumstances
There are many reasons why a son or daughter might choose to help their parents out financially. For instance, it’s estimated that about one in four divorces in the UK happens to those over the age of 50. Even if both parents receive a settlement, they might still not have enough to buy a home on their own.
A gifted deposit from their child – or children – could make all the difference and help them achieve a better loan to value (LTV), or a better home in a nicer area.
It might also be that parents are moving from a cheaper area to a more expensive one, from the North of England to the South, for example. They could even be relocating to be closer to their children or grandchildren, and maybe helping with childcare, giving the BOSAD even more reason to help out financially.
While in the UK we are used to hearing about parents helping their children financially and not the other way around, in some cultures, it’s actually quite common for children to feel a strong sense of duty to support their parents as well.
In China, for example, not only is it traditional for parents to help their children onto the property ladder, but there’s also an expectation that children will support their parents as they age – often financially – as a way of giving something back.
We can see evidence of this in the UK property market as well. Figures from the Department for Levelling Up, Housing and Communities show that when it comes to financial help from families to buy a home, the Chinese community in the UK receives the most support.
Joint borrower sole proprietor
In a similar way to gifting a deposit, children may also be able to help their parents through a joint borrower sole proprietor (JBSP) mortgage.
Assuming one child or both children are employed and earning relatively well, adding their income to the mortgage could help boost their parents’ affordability.
Since up to four names can be included on a JBSP application, more than one child can be listed as a joint borrower. The parent will own the property as the sole proprietor and be listed on the deeds of the property, but the child (or children) will be joint borrowers, with all parties responsible for making the mortgage payments.
This approach can make a lot of sense for families. Given the nature of the JBSP mortgage, it requires a great deal of trust between all the parties, which naturally fits the parent-child relationship.
Helping in this way not only gives the children peace of mind that their parents are living in comfortable, suitable accommodation, but it could also come with an informal agreement about the future inheritance of the property.
Lenders need to be flexible
The growing popularity of the BOSAD is just another sign of how lenders are offering more flexibility to borrowers across all generations.
We’re increasingly seeing borrowers who not only need lenders to take a flexible approach to underwriting, but also a personal one – and we’re proud to say that’s something we offer.
With the average UK house price now around £266,000 and as life circumstances change, older borrowers will continue to need mortgage options that stretch into and even beyond retirement.
Just as the BOMAD has grown in recent years, there’s also potential for the BOSAD to play a larger role in the mortgage market, with the ‘Bank of Family’ extending beyond just parents and grandparents.
