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Deposit flexibility means considering more than the ‘Bank of Mum and Dad’ – Harrison

by: Richard Harrison, head of mortgages at Atom Bank
  • 05/04/2024
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Deposit flexibility means considering more than the ‘Bank of Mum and Dad’ – Harrison
There has been a lot of talk of the ‘Bank of Mum and Dad’ in recent years and its importance to the mortgage market.

Financial support from loved ones has become far more normalised of late, even becoming part of product design with the development of things like joint borrower sole proprietor (JBSP) products, though in most cases that support will take the form of a gift towards a deposit.

A study by SunLife last year suggested that more than £35bn has been dished out over the last five years by parents and grandparents to their younger relatives in order to support their chances of buying a home, usually as a gift, to be put down on a property.

That’s an enormous sum of money, working out at an average of almost £16,000 being handed to loved ones to supplement a deposit.

It’s also notable that there are certain regions where such gifts are more prevalent. That research found that these financial helping hands are most commonly found in the North East, East Anglia, and London.


Why borrowers are reliant on gifted deposits

This should not be a huge surprise.

Saving a deposit is challenging at the best of times, but the events of recent years have made it all the more testing. We have had significant house price growth, meaning that sums that might have been a sufficient deposit a few years ago are now not quite enough to ensure the borrower can secure a mortgage.

On top of this, we have had extremely high inflation for a prolonged period. This has meant that would-be buyers simply haven’t had the room in their household budgets to put more cash aside each month to top up their deposit savings – indeed, some will have been compelled to dip into that pot just to keep on top of the escalating monthly outgoings.

As a result, it’s inevitable that greater numbers of prospective buyers are going to be reliant on financial help from their loved ones when putting together a deposit. The buyers’ efforts alone will not be enough.


Handling gifted deposits beyond the Bank of Mum and Dad

However, not all lenders are particularly open-minded when it comes to gifted deposits, with overly strict rules in place. This could involve limiting how much of the deposit can come from gifts, or who can provide those gifts – for example, restricting it simply to close relatives.

These simply serve as further hurdles for prospective buyers, making their dream of homeownership even more difficult to achieve.

The reality of the modern world is that when it comes to gifted deposits, it’s not just the ‘Bank of Mum and Dad’ – it could equally be the bank of aunts, uncles, grandparents, family friends and the like.

Lenders need to adapt to this reality and be sufficiently flexible so that we can continue to support aspiring buyers relying on gifted deposits, even if they come from wider sources than simply their parents.


Flexibility that makes a difference

Gifted deposits are just one example of how lender attitudes can make borrowing all the harder for certain subsections of clients.

We have seen similar issues with near prime, where lenders are overly fixated on the odd credit blip in a borrower’s history or reliant on a credit score, to the point that those borrowers are excluded from mortgages they are perfectly able to service.

We are committed to doing things differently, however, to support underserved areas of the market with flexible and accommodating underwriting.

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