Conveyancing review

Legal partners vital in ‘bank of mum and dad’ deals

Karen Rodrigues

Director of sales, eConveyancer

The ‘bank of mum and dad’ has played an increasingly important role in the UK housing market in recent years. A new study from YouGov has suggested less than half of first-time buyers purchase a home entirely independently.

It found that only 41 per cent of first-time buyers managed to get onto the housing ladder without financial backing from loved ones. In all other cases, the so-called bank of mum and dad played some role.

Little wonder that some have described it as one of the biggest lenders involved in the mortgage market, while its importance is only likely to grow in the months ahead as economic factors start to affect everyone’s finances.

WHY PARENTAL HELP WILL CONTINUE

First and foremost, here is the rate of house price growth. According to the latest data from the Office for National Statistics, the average house price in the UK jumped by 10.9 per cent in the year to February 2022, taking the average property price to £277,000. In cash terms, that’s a rise of £27,000, an extraordinary rate of growth.

That rate of increase makes it incredibly difficult for would-be buyers to put together a sufficient deposit, meaning that more and more have to ask loved ones for some assistance.

It’s not just a question of house prices, though. The ongoing cost of living crisis will inevitably have a knock-on effect on the affordability calculations lenders undertake, which may limit what they are comfortable offering to hopeful buyers. If there is then a shortfall between the maximum mortgage amount offered and the funds needed for the purchase, buyers will, of course, want to ask their loved ones for support. In some cases this may mean opting for one of the innovative family-based mortgages that some lenders have developed. These may involve relatives using their own home or savings as security, or going down the joint borrower/single proprietor route.

However, for others, the simplest answer will be receiving cash support that they can use to get that dream purchase over the line.

LEGAL EXPERTISE IS CRUCIAL

Working out the best mortgage option for clients in this position is of the utmost importance, and doing so is a job for which brokers are well equipped.

But it’s important not to overlook the role of the conveyancer when it comes to these family-assisted purchases. Lenders always want to have a clear idea of where any funds related to a purchase are coming from, and how they are being offered. Is it a gift from parents to children, helping them boost their deposit, or is it a loan between family members that will need to be paid off at some point?

There will also be money-laundering checks required regarding the source of these funds, to ensure that everything is as it should be.

All of this simply reinforces how crucial it is to have conveyancers that can be relied on. A legal partner who doesn’t have the necessary experience in this area can result in significant problems down the line, potentially even putting the entire transaction at risk.

WHO DO YOU WANT TO WORK WITH?

Speak to any mortgage broker, and they will tell you that the market is only becoming more complex. The days of the vanilla borrower are largely over, and not just because of the difficulties of the pandemic.

All of which only emphasises the value of working with an experienced panel manager. At eConveyancer, for example, we have spent a lot of time building a formidable panel of conveyancers for brokers and their clients to turn to, a panel that not only boasts substantial general property experience but can also cover niche transactions when specialist advice is required. This could mean purchasing with family members through a limited company buy-to-let, or through shared ownership, where an expert eye can make all the difference.

Partnering with the right firm can deliver peace of mind for brokers, safe in the knowledge that no matter what challenges may emerge, the legal team is well positioned to handle it competently. Crucially, the right partnerships also mean that clients enjoy a more positive and stress-free experience. M I