While the Bank of England (BOE) is anticipated to keep interest rates low for some time to come and mortgage interest rates will likely remain around current levels, it still won’t be enough for many people to take that first step on the housing ladder. There is another way though, and expectations are that an increasing number of potential home-buyers will turn to the bank of mum and dad during 2017.
Research conducted by the Centre for Economic and Business Research (Cebr) and Legal & General suggests the Bank of mum and dad will lend some £6.5 billion to their children this year. That’s up from the £5 billion borrowed from them in 2016 and puts them on par with the UK’s ninth biggest mortgage lender – the Yorkshire Bank - whose mortgage lending totalled £6.6 billion last year.
Amount Lent to Children Grows
The amount of money parents lend or give their children in 2017 is expected to rise 23% to an average of £21,600 in 2017 from £17,500 in 2016. And, while unsurprisingly, it’s the younger home-buyers – those under the area of 30 – who are more likely to receive the most help – some 298,300 deposits are expected to be provided by the bank of mum and dad this year, alone.
However, while the amount of money provided by the Bank of mum and dad is set to rise, the number of homes it will help their children purchase will be less than the 305,900 homes purchased with parental help in 2016. That’s due to a combination of house price inflation and a lack of availability of suitable homes for their children to buy.
“The Bank of Mum and Dad continues to grow in importance in helping young people take their early steps onto the housing ladder,” said L&G CEO, Nigel Wilson. “Parents want to help their kids get on in life, and the Bank of Mum and Dad is a testament to their generosity, but it is also a symptom of our broken housing market.”
Financial Support Not Always Fair
When it comes to how much parents are able to lend their children, the total might be going up. But, it’s not always the case that all children from one family receive exactly the same financial support.
The survey also shows that only 40% of parents can provide all the children with the same amount of money. Some 18% of parents only help the eldest child buy a home, while in 16% of cases, it’s the youngest child that gets the financial help they need to make their first real-estate purchase.
While these differences can be due to the specific circumstances of each child – one may not want, or need help to buy a home – it can also reflect the financial circumstances of the parents. However, with UK property prices so high, it’s no surprise that not all parents are able to provide a deposit for all their children.
Still, any financial help – be it a gift or a loan – from the bank of mum and dad, to help one, some or all of their offspring, make one of the most expensive purchases they’re ever likely to, is generous. But, if property prices hadn’t been pushed so far out of reach of those who earn average wages, they wouldn’t need to give quite so much.
More Action on Housing Required
Indeed, the fact that parents are lending children an increasing amount of money to assist them in buying a home, underscores that there is a big problem with the UK’s housing market.
“Transaction volumes are down in the housing market but the Bank of Mum and Dad funding is growing exponentially,” said L&G’s Mr. Wilson. “This is not a good thing, nor is it or equitable for our parents (the lenders) and young people (the borrowers). We need real action to fix the housing market and restore affordability for all.”