Author Mark Richards

More and more young people are having to turn to the Bank of Mum and Dad as they continue to struggle to get on the housing ladder

Gradually, the demands of your children increase. To begin with, they just need nappies and baby food: a few pounds. Then they need shoes, jeans, jumpers. Then their shoes, jeans and jumpers need to be fashionable! And then there is the school trip: “Mum, Dad, there is an exchange trip to France…”

Suddenly, it is not tens of pounds, it is hundreds.

…Until you face the university accommodation bills. Forget hundreds: now we are talking in thousands.

The older your children get, the more the demands increase – until, of course, the ultimate demand/request arrives…

“Mum, Dad, I need to talk to you. We need to talk to you. Chloe and I have been renting for two years now and well, it is just a waste of money and…”

They want to borrow the deposit for a house. And they are not alone. This year parents – the famous Bank of Mum and Dad – are predicted to lend £6.5bn to help their children get on the housing ladder, with first-time buyers continuing to struggle to buy a home.

Borrowing from the Bank of Mum and Dad

The figure of £6.5bn comes from Legal & General and economics consultancy Cebr (the Centre for Economics and Business Research) and means that parents will be involved in one in four property transactions in the UK.

Their report contains some astonishing statistics:

  • The Bank of Mum and Dad will help to fund property purchases worth a total of £75bn in 2017
  • It will provide deposits for 298,000 homes
  • The total lending of £6.5bn is roughly equal to the amount lent by the Yorkshire Building Society, the country’s ninth-biggest mortgage lender.
  • The average loan from the Bank of Mum and Dad will rise from £17,000 in 2016 to £21,600 this year
  • 79% of the funding will go to people aged under 30
  • Interestingly, only 40% of parents provide equal help to all their children: 18% of parents only help the oldest child, while 16% only support the youngest in the family. That must make for a few family arguments as the turkey is carved…
  • Parents are reluctant to give more help to children living in more expensive areas, but inevitably where they do give help, areas where a property is most expensive see the largest average parental contribution per transaction – around £30,000 in London and the South West, whilst Wales sees the lowest ‘loan’ at just £12,500. In London, 40% of first-time buyers had received help from their parents

How the market has changed

The English Housing Survey has detailed some figures which support these figures and trends. In 1994/95 there were 857,000 first time buyers, with an average age of 30. Twenty years on the number of first-time buyers had fallen to 564,000 (a 34% decline) while their average age had risen to 33.

In 1994/95 29% of all first-time buyers bought a property on their own: twenty years later this had halved to 14%. In 1994/95 21% of first time, buyers received help from family or friends and this figure had increased to 27% by 2014/15. Whatever measure you use, life has got tougher for first-time buyers and there seems no sign of it improving anytime soon.

Does this mean the UK housing market is ‘broken?’

Bank of Mum and Dad: The Bank that Always says “Yes”

Is the Bank of Mum and Dad a temporary solution? Or is it now a permanent part of what commentators are calling the UK’s ‘broken housing market.’ As Nigel Wilson, chief executive at L&G said,

“This is the second year of our survey, and the statistics show the problem is getting worse, not better.”

Well, yes. But no-one can say that two results are an adequate statistical sample. Then again, have parents not always given their children help with a first home – whether it was second-hand furniture or cash? And as the English Housing Survey confirms, more than 20% of first-time buyers had help in 1994/95 – so clearly the Bank of Mum and Dad has always been open for business.

Nigel Wilson thinks that the problem is rapidly getting worse. “Transaction volumes are down in the housing market, but contributions from parents are growing exponentially. This cannot be a good thing, and it cannot be sustainable for either parent or for young people.”

The gap between the generations

As many people have pointed out recently, this is another sign of the increasing conflict between the generations. The so-called ‘baby boomer’ generation – those born between 1946 and 1964 – has enjoyed more affordable housing, student grants while they were at university and, for those in the public sector, index-linked pensions. ‘Generation rent’ on the other hand is looking at a housing market where they cannot afford to buy, graduating with tens of thousands of pounds of debt and having to work until their late sixties to have a reasonable – but certainly not index-linked – pension.

“Parents want their children to get on in life,” said Nigel Wilson, “And the Bank of Mum and Dad is a testament to their generosity, but it is also a symptom of our broken housing market.”

What is the solution?

“The UK is experiencing a supply-side crisis in housing,” said Nigel Wilson. “We are simply not building enough houses. We need to build more homes [for everyone] more quickly and cost effectively.”

You could be cynical and say that as a supplier of financial products Legal and General ‘would say that wouldn’t they?’ But ultimately the housing market – whether you are renting or buying – is a function of supply and demand, and at the moment the demand for affordable homes outstrips the supply by a considerable margin.

The reaction and the reality

When the news of the Legal and General survey broke, many took to social media claiming that it was simply inherited wealth and that only ‘rich kids’ were benefiting from their parents’ help. I am not so sure: there are no figures to support this but anecdotally you hear of many parents making real sacrifices to help their children – using pension lump sums or re-mortgaging their own homes. It may be that ‘Britain’s broken housing market’ is affecting not just ‘Generation Rent’ but their previously-fortunate parents, who may have to sacrifice the retirement they had looked forward to in order to see their children on to the housing ladder.