Parents will lend more than £6.5 billion in 2017 to help their kids get onto the property ladder, putting it on a par with the UK’s ninth largest mortgage lender (Yorkshire Building Society), according to new research by Legal & General.
The financial services group reports that the ‘Bank of Mum and Dad’ (BoMad) will be involved in 26% of all property transactions in the UK this year, providing deposits for more than 298,000 mortgages and helping to buy homes worth a combined £75 billion.
Legal & General adds that while a third of homeowners had financial support from friends and family to buy last year, this figure jumps to 42% in 2017 with parents typically paying £21,600 towards their offspring’s home.
Around three-quarters (76%) of parental financial help goes towards the deposit, with just 4% going solely on mortgage payments.
And millennials are the big winners, with 79% of parental funding going to those under the age of 30.
Researchers found that parents in the South West of England are the most generous, typically giving £30,000 of financial support per transaction – just a little more than in London (£29,400). Parents in Wales were the least generous, offering on average £12,500.
‘Younger people today don’t have the same opportunities’
Nigel Wilson, chief executive of Legal & General, says: “The Bank of Mum and Dad continues to grow in importance in helping young people take their early steps on to the housing ladder. The intergenerational inequality that creates the demand for BoMaD funding continues to widen – younger people today don’t have the same opportunities that the baby boomers had, including affordable housing, defined benefit pensions and free university education.
“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.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, adds: “These figures come as no surprise with most of the first-time buyers who arrange their mortgages through us receiving significant financial assistance from their parents. However, while the report talks about a bank and lending, money from parents must really be a gift rather than a loan as far as mortgage lenders are concerned, so that it doesn’t impact the borrower’s affordability.
“Getting the correct legal documentation in place is also crucial, particularly if one set of parents is providing support to a young couple. Parents will want to protect their deposit gift if the couple split up so that it is returned to the parents and not split between the two parties.
“Parents who wish to maintain control over their savings may consider alternatives to simply handing them over, such as the Barclays Springboard mortgage or the Family Building Society Family Mortgage, where savings are offset against the mortgage as security but the parents get them back at a later date. This can also be useful for retirement funding, ensuring parents aren’t left penniless in their old age.”