The Bank of Mum and Dad is set to fork out even more to help family onto the housing ladder even although it will fund nearly 20% fewer property purchases than in 2018.
According to new research parents will spend an average of £6,000 more than last year when the average contribution was £18,000. It points out that this rise is double the average UK house price increase of £3,000 in the year to March 2019.
The research from financial services group Legal & General and Cebr says around £6.3 billion will be used by children to buy their first home in 2019, up from £5.7 billion in 2018.
It means that the Bank of Mum and Dad is now the 11th largest mortgage lender in the UK.
Despite the reduction in transaction volumes, the Bank of Mum and Dad will be involved in 259,400) property purchases. While down from 316,600 transactions last year, it still amounts to 19% of sales in the UK mortgage market.
In some parts of the UK, there has been an even bigger rise. For example, in the North West, the average ‘loan’ has nearly doubled from £12,900 to more than £24,000, while the South West saw the average contribution rise by over £10,000 to £29,700.
The research suggests that the shift in loan size could be because offspring are buying larger homes. Three bedroom houses or flats were the most commonly purchased properties in 2019 at 44%, and 38% have helped family or friends to buy a two bedroom property while 15% of parents helped them to buy properties with four or more bedrooms.
This year’s findings also suggest that the Bank of Mum and Dad is playing a more complex role in the housing market than previously thought. Millennials, those aged 35 and under, continue to rely on mum and dad the most, with 62% needing financial support from their parents or other family members and friends.
However, the Bank of Mum and Dad is helping more than just young first time buyers. The findings from Legal & General show that 22% of people aged 45 to 54 have received financial assistance from parents to purchase their latest property. Around 7% of over 55s have also received help from family or friends to buy their most recent home. This support for older buyers is expected to double, with 14% of Britain’s over 55s expecting assistance from the Bank of Mum and Dad for a future house purchase.
‘The Bank of Mum and Dad continues to be the iceberg mortgage lender beneath the surface of our housing market, all but invisible yet exerting a massive influence, funding purchases across the country and helping people to defy the economics of affordability and realise their housing dreams. This year, parents or grandparents, family or friends are set to lend thousands more to fund nearly one in five house purchases,’ said Nigel Wilson, group chief executive at Legal & General.
‘The Bank of Mum and Dad is a symptom of Britain’s broken housing market and it goes far beyond millennials relying on their parents as more older borrowers look to family and friends for financial support. Our reliance on Bank of Mum and Dad funding is an increasingly skewed facet of the UK housing market,’ he explained.
‘It’s dependency, not generosity. It’s is socially divisive and it’s creating a locked out generation of first time buyers who aren’t lucky enough to benefit from this kind help. It’s also almost certainly eroding older people’s finances when they need it to fund care and retirement, parents, grandparents, even friends are digging ever deeper into their savings and pensions. Real action is needed to deliver thousands more new and affordable homes to change the market for good, across a range of tenures,’ he added.
Parents are expected to make the biggest contribution to family members in 2019 and will be responsible for £4.4 billion of lending, while grandparents will lend £657 million. Other family members and friends will help more than 51,000 buyers by lending £1.2 billion to help loved ones buy a home.
Most are using cash savings, with 53% doing so, but this year unlocking housing wealth through equity release has jumped to become the third largest source of funds at 16%, the research also found.
Legal & General’s research shows that the Bank of Mum and Dad’s role is set to grow even further. More than a third, some 35%, of prospective buyers who are planning to purchase a home in the next five years expect to rely on financial support from their family.
The Bank of Mum and Dad is contributing the most in London at £31,000 per transaction on average, but those in Wales are also doing so with around £30,600 while the lowest is £13,700 in the West Midlands.
