INSPIRE: The unexpected financial influence of the bank of Mum and Dad
Recently released data suggests that “The Bank of Mum and Dad” will lend out £5 billion this year to children looking to get on the UK property ladder. Parents will therefore be assisting in financing one in four of all UK mortgage transactions in 2016. The average loan amount will be £17,500, around 7% of the average purchase price, and parents are expected to provide deposits for more than 300,000 mortgages on homes worth a total of £77 billion this year. All of this means that, if “The Bank of Mum and Dad” were to become an actual banking business, it would appear in the top ten mortgage lenders within the UK.
These figures strongly suggest that current house prices are severely misaligned with the average wage of first time buyers. This method of funding is also close to its tipping point in several areas of the country, not least in London where over 50% of the average household net wealth (not including property assets) is being used to help children buy their first home.
The choices that parents are making in order to help their offspring vary. Some are choosing to downsize, selling a larger home and buying a smaller one (often in a less desirable area) to free up funds. Others are choosing to use inherited assets to help pay all or part of their child’s deposit on a home. Parents often benefit from having finished paying off their own mortgage as well, leaving them with greater freedom to allocate funds to their children.
However, also worth considering is the imbalance of who can actually access “The Bank of Mum and Dad”. Not every young homebuyer will be in a position to have such support from their parents, whilst others will still be unable to afford to buy even with such financial assistance. It has been suggested that the only way to reduce parental contributions to their children’s homes is to fix the housing market through increased building, allowing prices to stabilise and become more affordable, thanks to demand being met sensibly.Subscribe to our newsletter
Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.
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