The Bank of Mum and Dad, Grandma and Grandad is open for business

You’ve heard of the Bank of Mum and Dad, or the BoMaD. Parents gifting deposits or contributing to stamp duty and other moving costs to get their children on the housing ladder isn’t a new phenomenon, but it’s one that’s gathering pace.

According to Legal & General (L&G), the average BoMaD gift or loan was over £25,000. L&G’s latest figures in 2023 show that:

  • Over half of under 35s who recently bought a home received financial help
  • Total BoMaD gifts reached £8.1 billion
  • 318,400 house purchases were supported by the Bank of Mum and Dad.

It’s not surprising. Young people are increasingly saddled with student debt (average £45,000 at graduation) and a jobs and housing market that feels out of sync.

According to data from the Higher Education Statistics Agency’s most recent Graduate Outcomes survey of 2020/21 graduates, the average salary reported by first-degree graduates in full-time employment was £27,340 fifteen months after graduation. To raise a deposit and meet moving costs in the thousands, the odds are stacked against young people trying to save.

Enter the BoMaDaGaG

We’ve seen the rate of assistance from parents increase as the cost-of-living crisis has bitten. The English Housing Survey reported a 33% increase in gifted deposits in a 12-month period between 2022 and 2023 (from 27% in 2021-22 to 36% in 2022-23).

Based on Legal & General’s survey of 1,600 parents who had helped out their children, most were gifting from their own savings. Many were withdrawing from their pension schemes or their own equity.

However, what analysts have seen in recent years is the introduction of a new financial saviour – the grandparents.
Saga recently surveyed 1,000 grandparents aged 65+ and 1,005 grandchildren aged 18-40. They found that 29% of all grandparents say they’ve lent or gifted money to their grandchildren, rising to 64% among grandparents aged over 85.

It could be that grandparents are seen as a valid source of wealth. Saga’s poll confirmed that grandparents are among the top three most likely sources young adults turn to first for financial support – parents were unsurprisingly top at 45%, followed by the bank (22%) and grandparents (15%).

Grandparents are very likely to have equity in their homes, which might explain why they’re stepping in and providing support. Just 3% of over 65s had a mortgage in 2022.

How are deposits being funded?

There’s always savings. Creating a Junior ISA or drawing from their own ISAs has helped parents come up with the funds.

If there’s not an immediate need, the Lifetime ISA is a good bet, as it benefits from a 25% top up from the government.

What might happen in the future?

A reduction in rates should improve affordability for those looking to get on the housing ladder. Whether there’s a significant enough drop remains to be seen. A fall in house prices would also help, but that also appears unlikely, especially as the rental market has seen increases there too, forcing some to consider buying when they might otherwise have continued to rent.

Once again, it’s a simple supply and demand equation. Only the creation of new housing will reduce demand and gradually cool prices. The challenge for politicians and housebuilders is to build new accommodation in the right location, at the right price for people to purchase it. Without that, parents and grandparents might become an even more important source of funds. If there’s one positive for the first-time buyer market, it’s that product innovation in the market will surely flex to this new trend and make it easier for people to gift or loan deposits.

A word on Trusts

Clive Barwell, Head of Later Life at Wren Sterling has worked with many clients who have gifted deposits and he adds:, “One of the concerns of BoMaDaGaG is what happens if the couple split up later, hence the use of loans rather than gifts. If, however, one of the subsidiary reasons is saving future Inheritance Tax, a loan doesn’t help. Setting up a Trust and then lending the money from there achieves all goals – helping the family member get on the property ladder, protecting the contribution from future divorce, and having the potential to save Inheritance Tax. If you would like help understanding your options further, please speak to your Financial Planner.”

Our Mortgages Team

Wren Sterling’s Mortgages Team is a whole of market mortgage broker. There are fee discounts in place for Wren Sterling clients so please speak to your Wren Sterling Financial Planner for an introduction.

Mortgage options

Ian Chetwynd is a Mortgage & Protection Adviser with Wren Sterling. He runs through the options that the BoMaDaGaG has for funding deposits for future generations.

“Whilst guarantor mortgages were a way of helping first-time buyers onto the property ladder previously, these are not readily available now due to regulation changes. New product innovation has resulted in schemes such as the Family Springboard Mortgage and Joint Mortgage Sole Proprietor mortgages arriving on the market, the later proving increasingly popular.

“Then there’s equity release or lifetime mortgages. It’s a market that has suffered from some reputational damage in the past, but which, at its heart provides a sensible solution as a way of providing an advance on inheritance. Not to mention supplementing retirement incomes and paying for home improvements.

“In addition to Equity release mortgages, lenders are increasingly becoming more flexible with older borrowers on standard residential mortgages, with some taking pension and or earned income for affordability well beyond state retirement age. These allow parents/grandparents to utilise their equity to help family get onto the ladder.”

IMPORTANT: Your home may be repossessed if you do not keep up repayments on your mortgage.
Equity Release is either a lifetime mortgage or home reversion scheme. To understand the features and risks, ask for a personalised illustration.