Entire generation priced out of housing market
As first-time buyers find themselves priced out of the housing market, increasing numbers are resorting to the infamous bank of Mum and Dad to help with covering the costs.
According to Legal & General, research indicated that £5 billion will be lent to the next generation of UK homeowners from the Bank of Mum and Dad in 2016 – a statistic making parental lending equivalent to a top 10 UK mortgage lender.
If parents don’t have the available resources to provide financial support, where do potential buyers turn? Some may resort to funding from someone else’s family, with over 25% of parents saying they would contemplate providing funds in order to assist other’s children in covering the cost of a deposit.
Naturally however, a return on any investments made would be expected, whether that be through a loan due to be repaid or rental payments on a monthly basis. The process provides an alternative to the conventional mortgage market and indicates that people are choosing to move away from the traditional saving schemes in order to obtain a larger yield on their investment.
The way this could work has been queried on a practical level. A potential solution may be that borrowers could be paired with people seeking to lend through an independent company. Another option may be for investors to be enabled to take a portion of an increase in a property’s value, potentially through an industry created product. Due to the market’s current climate, demand for this kind of investment remains prominent, thus the way in which the industry responds may be the best way for insight to be attained on this new means of saving maximisation.
Despite these alternative means of funding providing a useful source of finances for first-time buyers, the increased use of the Bank of Mum and Dad is ultimately due to issues at the core of the housing market, with its long-term effectiveness being limited.
The use of innovative lending methods may also be indicative of the increasing difficulty of getting a foot on the property ladder due to rising property prices. As the amount of funds from grandparents as well as parents is at a level for them to be classed as a top ten lender, it may be inferred that the growing demand for housing is not being met in regards to supply.
Suggesting the temporary nature of solution that the Bank of Mum and Dad should provide, is Stephen Smith. The Chairman on the Legal & General Mortgage Club commented on the Governmental need to prioritise affordable homes: “Although it may be helpful to many, the Bank of Mum and Dad is only a temporary fix, in that it represents an unsustainable form of support that cannot last forever. If we really want to give our children and grandchildren the best opportunity to become homeowners, the Government needs to put hundreds of thousands of affordable homes at the very top of its social agenda.”