top of page

A banking crisis close to home?

Rising mortgage rates are posing some difficult questions for one of the major providers of housing finance.

You would think that a group estimated to have provided £8.8 billion of residential property finance to 170,000 first-time buyers in 2022 would be well known, with a high street presence and careful oversight from the Financial Conduct Authority (FCA) and the Bank of England. However, you would be wrong.

The group in question has its own acronym, BOMAD – the Bank of Mum and Dad – and has been a consistent supplier of gifts and/or loans to nearly half of first-time buyers for the last decade. While the BOMAD generally does not charge interest, the increase in interest rates that has occurred over the last 18 months could see it facing some difficult questions. With very few exceptions, the first-time buyers that the BOMAD financed will also have borrowed from mainstream lenders and thus be facing increased mortgage costs at some point, typically when their two-year or five-year fixed rate mortgage deal ends.

The FCA has already told mortgage providers that they should consider offering borrowers:

· A switch to interest-only payments for six months, or

· An extension to their mortgage term to reduce their monthly payments, with the option to switch back within six months.

If you are a member of the BOMAD group, what should you do when you are asked for mortgage assistance by your children or grandchildren? The answer will depend upon many factors including:

· What other actions your ‘customer’ has already taken to reduce their mortgage outlay;

· How long any support is likely to be required;

· How much capital, if any, you are willing and able to gift or lend; and

· Whether you have surplus income, for example, as the result of higher interest rates, that you can give away or lend.

Inevitably, inheritance tax is also a consideration, although other taxes might be relevant. For example, this tax year’s lowered annual exemption means capital gains tax may be a problem if you are realising an investment to provide liquid funds.

The various options and their tax consequences make advice essential. Mainstream banks undertake due diligence before acting and so should the BOMAD.

Articles on this website are offered only for general informational and educational purposes. They are not offered as and do not constitute financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional. Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise.


Featured Posts
Recent Posts
Search By Tags
No tags yet.
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
bottom of page