Bank of Mum and Dad now a top ten mortgage lender
The Bank of Mum and Dad is now a top ten mortgage lender, supporting over £5 billion worth of lending.
The £5.26 billion of lending puts it ahead of the 10th biggest lender, Clydesdale Bank.
Over three quarters of such purchases – 256,400 of them – will be assisted by the buyer’s parents – with a further 22,500 and 27,000 supported by grandparents and other family members or friends respectively.
Gifted or loaned deposits from parents or grandparents will help finance a quarter of all UK mortgage transactions this year according to research by legal and General. But the research also shows that the Bank of Mum and Dad (or BoMaD) could be facing a fund crisis.
Most, 57%, contributions are gifts, with 18% interest free loans. Surprisingly, one in twenty are loans with interest. The average contribution is now £17,500 or 7% of the average purchase price.
The report by Legal and General states: “The BoMaD will not run into a nation-wide ‘funding crisis’ for another generation (in 2035), though 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 the BoMaD 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 51.0% of the average BoMaD 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 situation is even worse for those families that live in a region with lower household wealth, but whose children are looking to buy a property in one of the more expensive regions. In 2016, those families that live outside of London, but whose children or grandchildren do live in the capital will dedicate an average of 64.1% of their household net wealth to helping them onto or up the property ladder.”
Nigel Wilson, CEO of Legal & General said: “The Bank of Mum and Dad plays an increasingly vital role in helping young people take their early steps on the housing ladder.
“But the generosity being displayed by UK families doesn’t make up for intergenerational unfairness – 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 – 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.
“We have a supply-side problem in housing – 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.”