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Do you find the term ‘Bank of Mum and Dad’ puzzling?
Below, we have debunked the meaning of the property market’s current favourite buzzword as well as provide useful advice on what you can do to boost the borrowing power of a loved one.
The Bank of Mum and Dad, commonly known as BOMAD for short, is a term used in the context of a property purchase.
What is the Bank of Mum and Dad (BOMAD)?
Just as it states, gifted deposit is when a family member can gift a sum of money which will help towards their child’s property purchase - 56% of first time buyers were gifted a deposit in 2017. Without a deposit a house hunter is unable to buy a property with a mortgage; therefore having a deposit enables purchasing and having a larger deposit can potentially lower the interest rate that will be payable on the mortgage.
Borrowing on the family home
Providing the parent owns their home, equity can be released from their property by raising a mortgage. By doing so, parents can unlock cash on their property to gift their children or grandchildren a deposit.
Joint mortgage – sole ownership
When applying for a standard mortgage, parents can help their children borrow more by standing as a joint mortgage borrower. This could potentially increase the size of a mortgage they are able to obtain. The parent is jointly named on the mortgage; however the ownership of the property remains in the name of the child. This means stamp duty on a second home is not payable and capital gains tax (CGT) is avoided on sale if the property subsequently increases in value.
Don’t forget Grandma and Grandpa
It’s not just down to the Bank of Mum and Dad anymore. Nearly one in 10 (8%) of first-time buyers now turn to their grandparents for financial support to help grow a deposit. This is up from 2% five years ago; while consumer research from Legal & General found that 22,000 grandparents helped their grandchildren step onto the property ladder in 2017. Whether for early inheritance or simply looking to invest spare funds, grandparents are rapidly becoming more involved.
“All employees have every reason to be proud of what Newbury Building Society stands for. The customer service we experienced from staff was exceptional and above all, friendly. They could not have done more to guide my daughter and her partner through the quagmire and pitfalls of house buying.”– Ms R, Newbury