31/05/2017 Jeremy Duncombe, Director, Legal & General Mortgage Club
Earlier this month, Legal & General published a new report into the financial role parents play in helping their children get on or move up the property ladder. This year, the Bank of Mum and Dad (BOMAD) will lend over £6.5 billion, up 30% from the £5 billion lent last year.
The continuing increase in popularity of the Bank of Mum and Dad should be seen as a serious warning sign for our housing market. More and more young people are being presented with what can often seem like an impossible task of leaving behind the private rental sector and owning a home of their own.
Saving up for a deposit is the main stumbling block for many young people and the barrier that prevents most from getting on the property ladder. This is partly why the role of the Bank of Mum and Dad has grown exponentially in the past couple of years. Legal & General’s research has revealed that this year, the Bank of Mum and Dad will provide deposits for over 298,000 mortgages, helping family members to purchase homes worth £75 billion. These remarkable figures mean the Bank of Mum and Dad is now on a par with the 9th largest mortgage lender in the UK, up from number 10 in 2016.
The report shows that BOMAD will be involved in 26% of all property transactions that take place in the UK market this year. Unfortunately, the Bank of Mum and Dad is accompanied by a certain level of exclusivity as clearly not everyone is lucky enough to have parents in a position to offer them financial support. The increasing popularity, and often necessity, of the Bank of Mum and Dad is not a sign of a healthy housing market. The Bank of Mum and Dad is just plaster over a wound that is growing- it will help cover up the mark for the time being, but is far from a long-term solution.
The overwhelming imbalance between supply and demand is a main factor contributing to the continual rise in house price inflation. Put simply, there is not enough affordable housing available in the market. We need to address the root the problem by focusing our efforts on building the hundreds of thousands of appropriate homes that our country needs.
Collaboration is key between the Government and house building sector. The industry must work together to restructure and rebuild our housing market, so that owning a property is no longer seen as an unachievable ideal for many hopeful first time buyers. Otherwise the Bank of Mum and Dad will only climb higher up the chart of mortgage lenders in future years.