Bank of Mum and Dad seeks return on mortgage loans

The 'Bank of Mum and Dad' has high expectations, according to new research from HSBC.

While 19% of first-time buyers (FTBs) have received financial assistance from family members in the last year, the study shows that 52% of family lenders provided the cash with the expectation of being paid back.

Just 31% of families who offered financial assistance to their FTB relatives gave outright cash gifts as the primary source of family financing, and even fewer (17%) requested part-ownership of the property in a bid to collect their money when the house is sold on.

The survey of 1,000 FTBs revealed that of those who expect to be paid back, 73% expect to be paid interest on top of the loan balance. The most common rate ranged between 2.1% and 2.5%; around the current rate of inflation.

Women are slightly less likely to be asked to pay interest than men (70% compared with 77%) and the Bank of Mum and Dad is also more likely to ask for interest if their FTB relative is purchasing their first home with a partner (75%) rather than on his or her own (69%).

Peter Dockar, head of mortgages at HSBC, commented: "Family support has become an important part of the first-time buyer financing mix; however, the research shows that many relatives would like to be repaid at a later date.

"To avoid unnecessary strain on relations further down the line it is best to agree the terms with family members at the outset.

"Whether first-time buyers receive financial support or not, we will continue to offer accessible mortgages at competitive interest rates."

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