Generous parents helping their cash-strapped offspring are predicted to provide deposits for nearly 300,000 mortgages, according to a joint study.
What’s the latest?
The so-called 'Bank of Mum and Dad' is set to advance £6.5bn this year to help their children buy a home, making it the UK’s ninth biggest lender.
The figure is significantly higher than the £5bn they advanced in 2016, according to a study by Legal & General and economics consultancy Cebr.
Parents are expected to provide deposits for more than 298,000 mortgages, helping their offspring to purchase homes collectively worth £75bn.
Overall, they will be involved in 26% of all property transactions that take place in the UK this year and their lending is on a par with Yorkshire Building Society’s.
Why is this happening?
The main cause of the situation is the fact that house prices have increased significantly faster than earnings, meaning affordability has become increasingly stretched.
At the same time, lenders are continuing to demand large deposits from borrowers for them to qualify for their best deals, while they have also tightened affordability criteria and are less willing to advance high loan-to-income multiples.
Meanwhile, many young people are leaving university with significant debts after having to pay high tuition fees, leaving them with less money to save.
Nigel Wilson, chief executive of Legal & General, said: “Parents want to help their kids get on in life, and the Bank of Mum and Dad is a testament to their generosity, but it is also a symptom of our broken housing market.”
Who does it affect?
The research suggested it is getting increasingly difficult for young people to get on to the property ladder.
In 2016, a third of first-time buyers needed help from family and friends, but this year that figure is expected to jump to 42%.
At the same time, the amount of assistance being given is predicted to rise from an average of £17,500 to £21,600.
Millennials are the biggest recipients of funding from the Bank of Mum and Dad, with 79% of the total going to people aged under 30.
Sounds interesting. What’s the background?
Intergenerational fairness is not the only issue, with only 40% of parents saying they were able to provide equal support to all their children.
Location made little difference to the amount of help given, with most parents providing a fixed amount regardless of where their children choose to live.
Just one in five people provided more assistance if their children bought in a more expensive area.
That said, 39% of young people buying in London received parental support.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Parents who wish to maintain control over their savings may consider alternatives to simply handing them over, such as the Barclays Springboard mortgage or the Family Building Society Family Mortgage, where savings are offset against the mortgage as security but the parents get them back at a later date.”
Top 3 takeaways
- The Bank of Mum and Dad is set to advance £6.5bn this year
- The figure is significantly higher than the £5bn advanced in 2016
- Parents are expected to provide deposits for more than 298,000 mortgages