The so-called Bank of Mum and Dad is expected to fork out more than £5bn, providing deposits for over 300,000 mortgages, to help offspring get onto, or up the UK property ladder in 2016.
If this lending power was combined into a formal business, it would be the UK’s NINTH biggest mortgage lender, according to research by Legal & General (L&G) and Cebr, the economics consultancy. Parents are set to contribute an average of £17,500, or 7% of the typical purchase price. Therefore if the Bank of Mum and Dad was a formal business, it would be the UK’s NINTH biggest mortgage lender.
Since the property market recovered from the financial crisis, house prices have been rising faster than earnings, making affordability become increasingly stretched. At the same time, mortgage lenders are demanding bigger deposits from borrowers, while they have also imposed tougher affordability criteria. These factors have made it harder for young people to get onto the property ladder, leaving many reliant on parental help.
The Bank of Mum and Dad is most active in Wales, where it is expected to hand over £966.7m in 2016, while its lending is also in strong demand in the east of England at £840.4m and London at £535.8m. But while it might be great for adult children to get a leg up onto the property ladder, the handouts are not insignificant for their parents. Parents in London will advance an average of 51% of their net wealth, excluding property, to help their children buy a home this year, while those in the south east and the east are expected to cross the 50% threshold in 2025 and 2028 respectively. The research warned that families could not continue to use all of their net wealth to help their offspring get onto the property ladder without putting their own financial stability at risk.
The Bank of Mum and Dad could run into a funding crisis in 2035, although regions with the highest and fastest growing house prices will face this problem much sooner. The research added that the problem was particularly acute for parents who lived in regions with lower household wealth, whose children were trying to get onto the housing ladder in one of the more expensive regions. L&G and Cebr estimate that parents and grandparents who live outside of London but who are helping younger family members buy a home in the capital will have to hand over 64% of their household wealth.
Nigel Wilson, chief executive of L&G, said: “If we are ever to end or reduce our reliance on the Bank of Mum and Dad, and government initiatives such as Help to Buy, we need a new innovative approach to housing. Helping first-time buyers is necessary – but not the whole solution. We need to modernise house building and make it more efficient so that we can increase supply and quality for all forms of tenure, and all income and age groups, from students to pensioners.”