The generosity of the Bank of Mum and Dad
Our 'Bank of Mum and Dad' research shows the vital role parents and other family members play in helping children get on, or move up, the property ladder. Over one in four housing transactions in the UK are dependent on the Bank of Mum and Dad: but is this sustainable, or even desirable?
Our infographic below summarises the key findings, or read the full Bank of Mum and Dad 2018 report.
According to our latest figures, produced for the third year running in conjunction with economics consultancy Cebr, more people than ever – a staggering 27% of buyers - will receive help from family or friends. This means that the Bank of Mum and Dad (BoMaD), will be the equivalent of a £5.7bn mortgage lender in 2018. In most cases it's parents finding the money; but Bank of Mum and Dad also includes grandparents, other family members, and even friends, who together have supported 108,800 of these 316,600 property purchases.
At the other end of the transaction, it is not just those starting out in adult life who are getting a hand up on the property ladder. Our research reveals that 43% of buyers aged 35 to 44 received financial help from family and friends, with more than a quarter (26%) of those aged 45 to 54 still relying on the Bank of Mum and Dad. These people, in middle age, are most probably near their peak of earnings and will likely have children of their own. In part, this reflects the fact that the age of first-time buyers has increased significantly as house prices have climbed over the decades: in some parts of the UK the average age of these buyers is already in the early thirties. But it also reflects the challenges faced by those who already have a foot on the property ladder.
Is this sustainable? In last year's report, we raised the prospect that the Bank of Mum and Dad could one day face a crisis as house prices continued to rise, resulting in greater demands on parents' money to help young buyers. Our findings suggest that households are feeling the pinch. Parents are providing smaller sums, with the average BoMaD contribution declining from £21,600 in 2017 to £18,000 this year. This means that, although overall lending by the Bank of Mum and Dad is £5.7bn – a huge sum - it is a reduction from its height of £6.5bn last year.
Furthermore, is it desirable? Our findings are that the majority (71%) of BoMaD "lenders" used cash savings to help their loved ones. But 10% of the Bank of Mum and Dad admitted that their generosity had left them feeling less secure about their own financial future, and nearly 1 in 5 (17%) say that they cut back as a result, for example forgoing holidays or putting off buying a car.
One tool that remains significantly under-utilised is equity release. Our research finds that just 4% of over-55s have used equity release. Though 39% say they might consider it, and nearly half of those say they would put the money towards the purchase of a loved one's home. Given that almost £820bn worth of housing wealth is owned by UK homeowners over 55, there is considerable potential funding for the Bank of Mum and Dad. However, it is important to seek professional advice before releasing equity – and we strongly recommend seeking advice before making any financial decision that might affect your income in retirement. We found that only 23% of BoMaD lenders took advice before deciding to support their family member's purchase. Furthermore, for those that did, only a little over half got professional advice. Tellingly though, of those that did, 73% said it gave them added confidence in their lending decision, while 30% said that they were able to secure a more favourable deal.
Nonetheless, however the Bank of Mum and Dad is funded, it is neither desirable nor sustainable. What is needed; is to build more homes. Legal & General's Affordable Homes division is among the initiatives fighting to address this. But government, non-profits and private enterprise all play a role in addressing the UK's housing crisis, as will the parents, grandparents and wider family and friends of aspiring home owners – at least for the foreseeable future. We must make sure that this burden is bearable.
Read the full 2018 report: PDF file: Bank of Mum and Dad PDF size: 1.5MB