Have you heard of Bomad: If not, read on

I was reading recently that The Bank of Mum and Dad – or Bomad – has become one of the most significant lenders in the market and needs to be considered an important branch for the financial planning profession.

In 2016, Bomad financed a quarter of all mortgage transactions, which put it on a par with Yorkshire Building Society. It has since grown to become the sixth-largest lender in the UK, totalling more than £5.7bn in value last year probably mainly due to young people being increasingly inclined to look to their family for assistance as house prices rise faster than increases in income.

Recent figures revealed by the FCA show one in five people under 35 expect to receive financial help from their family. It is increasingly difficult for younger generations to take the first step on to the property ladder, recognised in that more than a third of all significant cash gifts from Bomad are given for a mortgage deposit. These contributions average more than £76,000 in London.

That said, parents making such contributions are not necessarily “high earners”. It is worth noting while the wealth of the baby-boomer generation has doubled in the past decade, many are now retired.

Considerable numbers of baby-boomers are withdrawing the large cash sums from their pension pots or, in some cases, downsizing or releasing equity on their own home, without fully understanding the long-term consequences.

The FCA’s Financial Lives Survey, published last year, revealed that, of all parents who gifted their children large sums of money, a massive 92 per cent did not seek any kind of professional financial advice. This could be potentially disastrous for their personal finances, as retirees run the real risk of running out of money. So more needs to be done by government and regulators to raise awareness among the public.

This issue of practicality is further exacerbated by the reluctance of many to formalise conditions when family is involved. Indeed, only 14 per cent of those polled by the FCA sought legal advice when handing money over to family members.

The sum required for a deposit is unanimously higher than the £3,000 gifting threshold currently maintained by HM Revenue & Customs and remains part of the originator’s estate for seven years.

It would be wise to have all transactions of significant value formalised. This is certainly true for a loan, so that the repayment terms are mutually agreed, but even a gift with no expectation of repayment at all. Such protections can help safeguard all parties involved.

This represents a growing trend and an increasing need for professional financial planning.