BOMAD – What are you talking about???
Some statistics to ponder …
UK 2017 –
- $12 billion of lending was from the bank of Mum and Dad
- 30% up on the previous year
- $71 million of lending from BOMAD
- 5th largest lender
- 52% of first home buyers are used BOMAD
- 6th largest lender
- $90,000 is the average size loan
- 60 – 70% are first home buyers
So what are the issues/considerations for both parties?
- What is the intention of BOMAD – Is it a loan or a gift?
- Are you financially in a position to lend or gift this money – what impact will it have on your retirement if you are not repaid and had anticipated being repaid. Would you like objective advice around this?
- Does this impact on the expectations of other family members?
- Have you as potential BOMAD considered the time value of money? If one child has use of money at the age of 30 and this enables them to get onto the property ladder, they can make far more effective use of this money, compared to your other children who may not access the money until they are in their 50’s or 60’s.
How can you protect all parties?
- Good lines of communication
- Robust and independent legal advice – you may decide to have a percentage ownership of the home.
- Limit the liabilities of BOMAD with both the lender and via the estate planning vehicles available to you.
Some examples: –
- Have a written acknowledgement of debt that is signed by all parties
- Identify the triggers for repayment – sale of the house, separation of the couple, BOMAD’s requirement to subsidise rest home costs?
- Clearly identify who are the parties to the debt? Is it both the child of the BOMAD and their spouse (if applicable?)
- If the one of the lenders passes away, is there an insurance policy in place to ensure the mortgage can be repaid? If so, who owns the policy?
- If it is a gift – is there a record of the gift? Is the gift to both the child of the BOMAD and their spouse?