The ‘bank of mum and dad’ has now become the tenth biggest mortgage lender in the UK, as young buyers are increasingly relying on financial support from their parents to get onto the housing ladder.
According to new research from insurer Legal and General in association with Cebr, this year alone, parents are expected to lend £6.5 billion, contributing to more than 298,000 mortgages and accounting for 26% of all property transactions. This is a 30 per cent increase on the £5 billion loaned in 2016.
With house price increases far outstripping growth in average wages, first time buyers are struggling to save a big enough deposit to qualify for a mortgage loan and get a foot in the door without parental assistance.
The country-wide average of borrowing from the bank of mum and dad currently stands at £21,600, with London much higher at a staggering £29,400. Of those buyers that receive help from family and friends, 57 per cent receive it in the form of a gift, 18 per cent were given it as a loan with no interest and five per cent as a loan with interest.
House prices rose by 5.8% in the year to February, with the average home now costing £218,000 according to data from the Office of National Statistics. Figures show that buyers are now expected to pay 7.6 times their annual earning when purchasing a home which is more than double the 3.6 time earnings they would have had to pay in 1997.
Labour MP and former Higher Education Minister David Lammy has queried, what happens to those who don’t receive financial assistance from parents?
“A broken, deeply unfair housing market is entrenching inequality. Access to the bank of mum and dad is essential to getting on the housing ladder. What about those without an inheritance or without wealthy parents? The concept of ‘affordable’ homes has lost all meaning across the country.”
Nigel Wilson of Legal and General commented:
“Transaction volumes are down in the housing market, but parental funding is growing exponentially. This is not a good thing, nor is it sustainable or equitable for our parents or young people.
“The intergenerational inequality that creates the demand for parental 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.
“The UK is experiencing a supply-side crisis in housing – we are simply not building enough houses. We need to build more homes for the young, old and families alike, more quickly and cost effectively.”
Kate Faulkner, Property Expert and Author of Which? Property Books stated:
“We must remember that the increasing use of the bank of mum and dad is a symptom of the lack of housing in the UK not the solution, so we need to build enough houses to match population growth.”
Relying on family and friends would not be necessary if house prices were not so out of sync with the average wage. Ultimately however, the problem the UK faces is too few houses and until the demanding supply issue is addressed, the bank of mum and dad may not be short of customers, but could quite quickly find itself short of funds.