Bank Of Mum And Dad 11th Largest UK Mortgage Lender
The Bank of Mum and Dad (BoMaD) are now the 11th largest mortgage lender in the UK, eclipsing the Help to Buy schemes in helping younger buyers gain a foothold on the property ladder.
In total, the BoMaD will lend almost £7 billion to potential homeowners this year, a 10% increase on 2018 despite the fall in property transactions, according to Legal & General’s ‘Bank of Mum and Dad 2019’ report.
Last year, 316,600 properties were bought using deposits funded by older family members, this figure has fallen to 259,400 in 2019 as more buyers wait out the Brexit storm before committing to a property purchase.
On average, older friends and family are set to lend their loved ones £6,000 more in 2019 than they did a year earlier with £24,100 being loaned to their younger relatives in total.
The £6.26 billion worth of lending will fund home purchases worth £68.51 billion. In comparison with 2018, £5.71 billion lending helped buyers purchase property worth £81.71 in 2019, highlighting the growing importance of this section of the property market.
It would seem that all age demographics are becoming dependent on their older relatives for hand outs when making financial commitments like home ownership. Over a fifth (22%) of people aged between 45 and 54 years old asked their ageing relatives for help to acquire property.
This figure rises to over a third (36%) of 35 to 44 years old and almost two thirds (62%) of people aged under 35.
The report also stresses the widening affordability gap developing despite a market slowdown. A decade ago an average property would cost around £150,000. Currently, the average UK house price stands at £230,292 with the 2013 total set to double in the UK by 2023.
Unfortunately, the UK average income in 2013 was £27,017 and this has only just increased to £29,009, effectively pricing the average household income out of ownership affordability without additional help.
Whilst this may seem like a vicious cycle, the report indicates that help from this lending source may not be a viable long term solution, even though 19% of all home sales use this lender and older family members want to help.
The BoMaD are having to stretch themselves beyond their means to help their offspring. Over a quarter (26%) of this lending group are not confident they have enough to live on in their retirement. The fact that 59% of relatives offer the deposit contribution as a gift rather than a loan is only exacerbating this issue further.
In many cases, the BoMaD are not in a position to use savings to finance their younger relatives home move. 9% are forced to cash in their pensions, 7% use their draw-down pensions and 6% use the annuities, 14% downsized their home.
In many cases, older relatives are also taking on debt themselves to ensure their offspring acquire a property of their own. 6% took out a loan, 4% remortgaged their own home and 16% are taking out equity release finance. Furthermore 29% admitted they are considering equity release in the future as a result of helping younger relatives.
Jeanette Makings, Head of Financial Education at Close Brothers, comments:
“As a parent, it’s natural to want to help your children in any way you can. But if you’re supporting your children financially as they move into adulthood, it’s crucial that you spend some time planning ahead. You’re no longer working solely to your own financial plan, you’re also working to someone else’s.
“Remember to look at how any outgoings are impacting your short, medium, and long-term goals, and try to think objectively about whether the help you’re giving is the right kind of help. For example, paying off student debt may not be an efficient use of your support, compared to contributing to a house deposit or pension scheme. Get professional advice if it impacts your financial plan and don’t be afraid of having frank conversations with your children; breaking the stigma around money is crucial, whether they’re thirteen or thirty.”
How important is the BoMaD to the lending market? What needs to be done to reduce the sectors reliance on older relatives to fund property moves?