Parents helping their children to buy a first home will lend over £5 billion in 2016, according to a new study by the financial services group Legal & General (L&G).
L&G found that 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. It will provide deposits for over 300,000 mortgages, purchasing homes worth £77 billion.
Nigel Wilson, CEO of L&G, 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.’
The study also found that the average financial contribution from parents is £17,500, or 7% of the average purchase price, and that 57% of parental contributions are gifts, 18% are loans with no interest and 5% are loans with interest.
However, Mr Wilson warned: ‘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.’
He added: ‘If we are ever to end or reduce our reliance on the Bank of Mum and Dad (and Government initiatives such as Help to Buy 2), we need a new innovative approach to housing. Helping first-time buyers is necessary – but not the whole solution.
‘We need to modernise house building and make it more efficient so that we can increase supply and quality for all forms of tenure… Infrastructure, jobs and local economic growth are all key to creating thriving communities where people want to live.’