Bank of Son and Daughter Mortgages Made Easy

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Ian Symmonds from Easy Street joins the Mortgage & Protection Podcast to talk all about mortgages for contractors.

Whether you’re buying for the first time, moving, investing or remortgaging we’ve got it all covered.

Listen below. 

Bank of Son and Daughter Mortgages

Families don’t just rely on the Bank of Mum and Dad to help with buying property. Bank of Son and Daughter mortgages are also becoming more common as parents can also need help.

This can be for a number of reasons. Examples include coming to the end of an interest only mortgage, moving home or needing additional income or support in retirement.

What is the Bank of Son and Daughter?

Of course, it isn’t an actual bank.

The Bank of Son and Daughter is simply a phrase sometimes used when children are helping their parents financially.

How can the Bank of Son and Daughter Help?

There are a number of ways that children could help their parents.

Gifts

If the parents are in need of funds, this can be a simple gift from the children to the parents.

The funds could come from savings, investments or perhaps a remortgage on the children’s property.

Joint Mortgage

It could be that a Son and/or Daughter may take a joint mortgage with their Mum and/or Dad.

This could be for a purchase or remortgage.

Joint Borrower Sole Proprietor (JBSP) / Joint Mortgage Sole Owner (JMSO)

Where a joint mortgage isn’t appropriate, a Joint Borrower Sole Proprietor (JBSP) / Joint Mortgage Sole Owner (JMSO) may be an option.

This is seen as an alternative to guarantor mortgages and is essentially an income boost mortgage. The children would go on the mortgage, but not the deeds. This means that their income is used, but ownership does not change.

Lifetime Mortgages

Lifetime mortgages are available to borrowers over the age of 55. Option are available to pay the interest only on a lifetime mortgage or allow the interest to ‘roll up.’

With rolled up interest, this can affect the value of an estate and therefore reduce the inheritance for beneficiaries. If this option is appropriate, we have seen instances where parents have taken out a lifetime mortgage because they need the funds, but the children have chosen to service the monthly payments in order to preserve the value of the estate.

This options is not suitable for everyone so specialist advice is recommended before proceeding.

Mortgages for Dependent Relatives

It may be possible to take out a mortgage for a dependent relative.

With this option, the children would own the property, but the parents would live in it. For this to work, the children would have to have enough income to cover the costs of this second property as well as their own normal monthly outgoings.

This is not to be confused with a regulated buy to let for family members. With this type of mortgage, it is assumed that the property is let to the tenants (the family members) so rental income changes hands. With mortgages for dependent relatives, this is not usually the case.

Speak To An Expert

Our key aims are to fully understand what you are looking to achieve, create a solution tailored to your needs, deliver results through an excellent service and build a relationship for life.

What are the risks?

There are a number of things to consider before proceeding.

For any option that involves being liable for a debt, the key considerations will be around liability, affordability and future plans. 

For example, if the parents miss a payment or can’t afford to contribute, how will this affect the children? If the children want to move home in the future, how will the debt affect their ability to borrow?

Where funds are being gifted, the key issue is opportunity cost. What were these funds earmarked for? How does gifting these funds affect future plans?

Finally are there tax implications. Will additional property stamp duty have to be paid either now or in the future? Does this affect inheritance planning? Speaking with a tax specialist and / or an estate planner could be a good idea (please note, we only advise on mortgages).

How can a mortgage broker help?

Speaking with a specialist broker who has experience in dealing with Bank of Son and Daughter mortgages could help you make the right decisions.

You need to consider all of the potential options and their impact before proceeding.

A specialist broker will talk you through your options, point out the pros and cons and give you the information you need to make good informed choices.

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