The Bank of Mum & Dad
Legal & General, the FTSE100 financial services group and Cebr, the economics consultancy, have today published a new report into the role the Bank of Mum and Dad play in helping their children get on, or move up the property ladder. The research shows the Bank of Mum and Dad will lend over £5 billion, providing deposits for over 300,000 mortgages, purchasing homes worth £77 billion in 2016. The Bank of Mum and Dad is the equivalent of a top 10 mortgage lender in the UK and will be involved in 25% of all property transactions that take place in the UK market this year.
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.”
Other key findings from Legal & General’s “Bank of Mum and Dad” research include:
In 2016, family and friends will help 300,000 of their loved ones to buy a home
The Bank of Mum and Dad will help to finance 25% of all UK mortgage transactions in 2016
The Bank of Mum and Dad’s average financial contribution is £17,500 or 7% of the average purchase price;
Over three quarters of “BoMaD” 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/friends respectively;
57% of Bank of Mum and Dad contributions are gifts, 18% are loans with no interest and 5% are loans with interest;
£5bn of mortgages will be supported by BoMaD in 2016, making the Bank of Mum and Dad a top 10 lender
Is the Bank of Mum and Dad facing a future funding crisis?
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 homeowners 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.
Jeff Fawcett, Chief Investment Officer for Strategic Solutions Financial Services and for Casterbridge Wealth discretionary fund managers said; We are not surprised to see the outcome of this report; many of our clients fit this scenario. When we meet our clients a fair percentage of those past retirement ask us to help them build portfolios with this outcome in mind and we also get many requests for gifting or loaning of money from pension pots at the point of retirement. Our financial planners have also been able to work with their clients under the new pension flexibility rules to enable this goal to happen quicker than previously; whilst our investment managers have been able to build differing strategies for exactly these types of situation. For many of the younger generations, standard mortgage lending criteria simply does not add up to getting them on the housing ladder; so we expect to be helping more and more clients over the years.