Taylor Scott International News
Parents are set to lend over £5 billion to their offspring to buy a home by providing deposits for over 300,000 mortgages, purchasing homes worth £77 billion in 2016, according to new research. It means that the so called Bank of Mum and Dad is the equivalent of a top 10 mortgage lender in the UK and will be involved in 25% of all property transactions that take place in the country this year. Research from financial services group Legal & General and economics consultants says that this is likely to continue as long as the supply problem persists in the UK housing market. ‘The Bank of Mum and Dad plays an increasingly vital role in helping young people take their early steps on the housing ladder,’ said Nigel Wilson, chief executive officer of Legal & General. He pointed out that younger people today don’t have the advantages the baby-boomers had, including cheap housing that delivered windfall gains. ‘People will always want to help family members as it is a natural thing to do. Relying so heavily on the Bank of Mum and Dad however risks increasing inequality as many young people today are not lucky enough to be able to access parental support when buying a home, or can’t afford to buy even with parental help,’ Wilson explained. ‘We have a supply problem in housing as we are simply not building enough houses. We need to build more, especially as the Bank of Mum and Dad could soon start to experience a funding crisis of its own,’ he added. The research also found that the Bank of Mum and Dad’s average financial contribution is £17,500 or 7% of the average purchase price. Some 256,400 purchases are likely to be assisted by parent with a further 22,500 and 27,000 supported by grandparents and other family members or friends respectively. Some 57% of Bank of Mum and Dad contributions are gifts, 18% are loans with no interest and 5% are loans with interest. The report suggests that the Bank of Mum and Dad will not run into a nationwide ‘funding crisis’ for another generation, around 2035, but the regions with the highest and fastest growing house prices will face this problem much sooner. London is already at the tipping point when it comes to such funding. In 2016 London home owners that received some financial assistance from family and friends, got an average of 6.2% of their home’s total purchase price from the Bank of Mum and Dad. This represents 51% of the average Bank of Mum and Dad household net wealth in London, excluding property assets. In the South East, the average family contribution towards a loved one’s home purchase will cross the 50% mark in 2025 while for the East of England this will happen in 2028. Families clearly cannot continue to use all of their net wealth to help their offspring onto the housing ladder without putting their own financial stability at risk. This… Taylor Scott International
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