One of the UK’s most important banks has no branches, issues no debit cards, but might just make a mean cup of tea.
The Bank of Mum and Dad is massive - according to a study by Legal & General (L&G) , parents helped their children fund the purchase of £77billion of property during 2016, a huge undertaking.
Its study found that parents lent out around £5.6billion over the year, making it one of the ten biggest lenders in the nation.
But parental help onto the housing ladder can come in all sorts of different forms.
Beefing up your deposit
The easiest way that parents can help their kids make that first purchase is by contributing towards their deposit.
As house prices have become ever more expensive , getting together a sufficient deposit has become increasingly difficult.
Research by Halifax last year found that the average deposit required by first-time buyers now stands at a whopping £32,927. So a few quid from mum and dad can make a big difference.
L&G found that 57% of parents handed this cash over as a straight gift, though 18% offered it as an interest-free loan. Just 5% of parents expected the cash back with interest on top.
Act as a guarantor
Another way that parents can help is by acting as a guarantor on their child’s loan.
If your parent agrees to be a guarantor, they essentially offer a guarantee that if the main borrower - in this case, you - defaults on the payments, the guarantor will then be liable for paying them.
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The guarantor’s finances are taken into account when you apply for the mortgage, which may mean that you can borrow more than if you take out a mortgage on your own.
The downside is that there aren’t that many lenders who actually offer a traditional guarantor mortgage today.
Take out a joint mortgage
Instead, banks now increasingly prefer that parents who want to help their kids borrow sign up as joint borrowers on the mortgage.
This is a slightly different arrangement - while the parents’ income and assets will be taken into account in the application, they will also be named on the deeds and the mortgage agreement, which means they have some say in any future transactions.
Be warned, if your parent already owns a home and acts as a joint borrower with you, then you will have to pay the higher Stamp Duty rate on your home purchase.
Since last year, purchasing a second home has incurred an additional 3% Stamp Duty charge. So if you buy a property worth £200,000 with your parent as a joint borrower and they already own a property, you’ll have to shell out £7,500 in Stamp Duty rather than £1,500.
Ouch.
Use their home
A number of lenders now offer mortgages where the parent can use their home as security against their child’s loan, essentially removing the need for a deposit.
For example, Aldermore offers the ‘Family Guarantee’ mortgage, which allows you to borrow up to 100% of the value of the property.
Interestingly, it isn’t limited to those trying to buy their first home either - even if you already own a home, you can still make use of it, so long as your parents are willing.
Of course, there is a big issue to bear in mind here - by using their home as security, your parents are putting their own home at risk if you can’t keep up your repayments.
Use their savings
If they don’t want to put their home at risk, then parents can instead opt to use their savings. The idea is that the savings ‘offset’ the mortgage their child is taking out, again removing the need for a deposit entirely.
The Barclays Family Springboard mortgage is a good example of how this can work. The parent puts savings worth 10% of the purchase price into a ‘Helpful Start Account’ with Barclays, which allows their child to borrow the full balance they need.
After three years, the parent gets their savings back, with interest on top, so long as the child has kept up with their repayments.