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  • Joint 9th Biggest Mortgage Lender… Bank of Mum and Dad

    17th November 2017


    Joint 9th Biggest Mortgage Lender… Bank of Mum and Dad

    There’s a new bank on the high street with impressive customer uptake… well, not quite – actually it’s quite alarming. The Bank of Mum and Dad is now lending a similar amount to the ninth biggest mortgage lender and will be involved in more than 25% of UK property transactions.

    Predictions from Legal & General suggest that parents will lend more than £6.5bn this year to help their children start their climb on the property ladder as high property prices, declining real wages and the housing shortage make it a struggle for first-time buyers to afford homes.

     

    Bank of Mum and Dad – the facts:

    • Will help fund £75bn of property purchases in 2017
    • Involved in 298,000 mortgage deposits
    • £6.5bn being lent is roughly equivalent to the amount lent by Yorkshire Building Society
    • 79% of funding will go to people under 30
    • South East contributions £30,000 / Wales £12,500
    • £1bn a year spent on children’s rent and moving costs

    Source L&G, Shelter

     

    But is this surprising? Probably not. We keep hearing about housing shortages, declining wages in real terms, rising rents, rising university fees and a lack of affordable housing. Until solid plans are put in place to build more affordable housing and at a high enough rate, this won’t end soon. Building more houses would also create more jobs and help economic growth.

    The report says the amount of lending by parents is more evidence that the UK housing market is failing to work properly. Nigel Wilson, the chief executive of L&G said: “This is the second year of our bank of mum and dad research programme and the statistics show the problem is getting worse, not better.

    “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 [the lenders] or young people [the borrowers].

     

    How does this compare to 1990:

    The Social Mobility Commission found the percentage of first-time buyers turning to family for help is at an historic high of 34% compared to 20% in 2010. Just 31% of 25-29-year-olds own a home compared with 63% of the same age group in 1990.

    If the economy weakens, it is predicted that the proportion of first time buyers being propped up by family will boom to 40% by 2029.

     

    What’s wrong with renting?

    On the surface, nothing. But, a study from housing charity Shelter highlighted that around 450,000 adults across the UK also have to go to the Bank of Mum and Dad to afford their rented homes. It estimates that parents spend £850m a year on their children’s rent and £150m a year on moving costs.

    As long as interest rates are low, mortgage payments each month are cheaper than rent. But as long as deposits remain unaffordable for those without access to the Bank of Mum and Dad, many first-time buyers remain stuck in this catch 22.