By Mark Fairlie
Parents helping their children get on the property ladder are beginning to “feel the pinch” financially, says a new study from Legal and General (L&G) and economics consultancy Cebr.
According to the research, these purchases will make up 27% of all property transactions in the UK market, which is up from 25% in 2017. Current estimates suggest as many as 316,600 homes will be bought with funding assistance from family and friends this year.
L&G have expressed the vital role that the ‘Bank of Mum and Dad’ plays in helping both first-time buyers and those looking to move up the housing ladder. The most common financial support of this kind involves parents providing deposits for mortgages, covering almost 300,000 payments in 2018 alone.
More help for smaller sums
Last year, overall lending from the Bank of Mum and Dad (BoMaD) rose to £6.5billion – equal to that of the ninth largest mortgage lender in the country. This is expected to drop to just £5.7billion in 2018.
Whilst the number of parents helping their children to buy their homes has greatly increased, the average parental contribution has gone down by 17% from £21,600 to just £18,000 since 2016.
L&G have said the change shows that parents are now “feeling the pinch” of this trend, but that the Bank of Mum and Dad remains “a prime mover” in the UK housing market.
Key trends and findings from the study
The research involved a combination of surveys and analyses of existing housing market data, including HM Revenue and Customs’ house sales report.
More than one in four buyers are thought to make their property purchase with assistance from family members, yet the amount buyers rely on their parents for help has been seen to vary greatly depending on their location.
The UK House Price Index shows that whilst the average price for a semi-detached property in the UK in 2018 is £225,674, this rises to £578,716 for a semi-detached property in London.
This is reflected in BoMaD lending patterns, with the average parental contribution for a property in London standing at £31,000 compared with £11,000 in Scotland. The research also found that more buyers in London receive financial assistance from family and friends than in any other region in the UK.
“People are feeling a bit of a pinch around the economy and therefore we’re seeing pretty much a national trend outside of London for less to be given,” L&G chief executive Nigel Wilson told the BBC.
“The volume of transactions depending on Bank of Mum and Dad funding keeps on growing, even as parents find it harder to provide as much money for the deposit.”
Millennials were found to be the most likely to receive BoMaD assistance when buying a property, with nearly 60% of under 35s using money from their parents to buy their home.
However, the study also found that one in five homeowners between the ages of 45 and 55 also relied on financial assistance from their parents, with a further 8% of over 55s received funding from the “Bank of Mum and Dad”.
Will the Bank of Mum and Dad run out of funds?
Of those who received financial help for purchasing properties in 2017, it was found that 57% were given the money in the form of a gift, 18% as an interest-free loan, and only 5% as a loan with interest. This data has raised many questions with critics as to the sustainability of this approach.
The study predicts that, by 2025, the average BoMaD loan size will wipe out more than half of a family’s available net wealth excluding any existing properties. Where children are looking to move to London from other parts of the UK, this figure already stands at 64%.
As a result, L&G predicts it is unlikely the trend will continue with today’s young parents. Lack of disposable funds means many households will be unable to help their children get onto the housing ladder in twenty years’ time without first ‘unlocking value’ from their own properties.
Wilson said ,“the fact that in 2018, 1 in 4 housing transactions in the UK will be dependent on the Bank of Mum and Dad, while hard-pressed parents are finding it more difficult to provide the funds to help their family with deposits, will further exacerbate the UK’s housing crisis.”
He suggested more affordable homes for the young, old and families alike are needed to help ease the problem.