BOMAD Lending hits Record High in COVID-2021
Analysis from property group Savills shows that 2021 was a particularly expensive year for the Bank of Mum and Dad.
The research suggests that total BOMAD lending in 2021 reached around £10 billion and benefitted around 169,000 first-time buyers – that’s around 49% of all FTB property transactions for the year.
BOMAD lending has definitely become a mainstream option for first-time buyers, but it comes with a number of risks because such financial transactions and agreements can have long-term ramifications for the whole family.
If you are thinking about lending or gifting money to your children you should make sure you understand the full legal and tax implications before you go ahead. Contact Wellers Law Group today so that our multi-discipline team can help you ensure all the important factors are considered and addressed.
COVID uncertainty in 2020 and a drop in FTB transactions
The global health pandemic, which began in early 2020, caused employment uncertainty and wage reductions for many prospective buyers and consequently the first-time-buyer housing market slowed considerably. Savills’ figures suggest there were only 304,000 such house purchases in 2020, the lowest figure for five years.
What does the future hold for BOMAD?
The Savills research forecasts that while 2021 is likely to set a precedent for the value of family lending, as loan to value ratios begin to return to normal levels in the next few years, the amount that will be needed for deposits will reduce. The forecast for 2022 is that BOMAD deposit lending could fall to £7.9 billion, accounting for 42% of all FTB mortgages.
However, the government’s Help to Buy scheme is expected to be withdrawn completely from March 2023, and forecasts suggest that the number of FTBs who need deposit assistance will rise once again.
What you need to know about lending or gifting money to your children?
If you can afford to give money to your children to help them purchase a property, then a) they are very lucky and b) it is the most straightforward way of funding a deposit in terms of legalities. However, you need to be aware that such gifts, especially later in life, could be scrutinised by the HMRC and may have significant tax implications.
If you are thinking about lending money to your children for a house deposit, this can be an effective way of helping them while not damaging your own financial security. However, the number one pitfall of this strategy is that unless you make sure you have been clear from the outset about the lending arrangements, in the future it may be difficult to prove that the money was not a gift and that you expected to be repaid. Drawing up a loan agreement can be the best way to proceed.
Perhaps you are considering a joint purchase, if so you will need to ensure that you have protected yourself with, at the very least, a declaration of trust. You will also need to make sure your Will is updated and that your children have Wills, also you would need to consider any capital gains that might be made on your share of the property.
If you are thinking that you would like to use your money or assets as security to enable a property purchase for your child, a family mortgage might be the right method for you and we can help you with the legal aspects of such a purchase.
BOMAD transactions can be wonderful things, that’s for certain, but unless you have ironed out any legal wrinkles, they could end up being very problematic. It can be hard to know where to go for help relating to all the different matters mentioned above, but Wellers is on hand to assist you.
How Wellers can help with BOMAD lending, gifting and house purchases
Wellers is a multi-skill legal practice that brings together legal expertise on property law, Wills, family law, tax and tax law, amongst other areas of law.
Whether you are the parent or the child in a BOMAD property purchase, we can provide the services you need to protect all parties. We can also provide advice about suitable and secure methods for carrying out the transaction that will protect your wider wealth and financial interests.
Please contact Wellers if you wish to know more about our services and to discuss how we could assist you. Please fill out our enquiry form and we will call you back.