Bank of Mum & Dad key to growth of UK housing market
The ‘Bank of Mum & Dad’ continues to play a key role in the UK housing market with house-buyers, particularly first-time buyers, increasingly relying on their parents and friends to climb up the housing ladder.
According to a research by Legal & General, the ‘Bank of Mum & Dad’ will be a prime mover in the housing market in 2018 and will be the equivalent of a £5.7bn mortgage lender! It’s supporting more house buyers than ever, as it is predicted that approximately 27 per cent of all buyers will receive help from friends or family in 2018, up from 25 per cent in 2017 – purchasing almost 317,000 homes.
Legal & General has conducted the ‘Bank of Mum and Dad’ campaign for the third consecutive year and it found out that one in four housing transactions in the UK are funded by parents or friends of buyers. Last year, the number of transactions involving the ‘Bank of Mum and Dad’ was 298,000. This year, the cash injection from this informal banking group is estimated to be £5.7bn.
In most cases, it is parents donating the money for these purchases, but grandparents, other family members and even friends have between them supported the dream house purchases. The seriousness of the housing crisis is reflected in the generosity of this wider circle of family and friends willing to step up to help buyers, who otherwise find it to difficult to afford their homes on own.
Not surprisingly, many of these house buyers are relatively young and are purchasing their first home with all possible financial assistance. In broad terms, buyers under the age of 35 years were by far the most likely to have received assistance for their most recent purchase. Legal & General is of the view that without the ‘Bank of Mum and Dad’, the first-time buyer market would collapse.
Interestingly, it is in London that the ‘Bank of Mum and Dad’ is highly active. Over the last year, two in five (41 per cent) recent buyers in London received ‘Bank of Mum and Dad’ assistance – the highest proportion in the UK. By contrast, just one in five in the north of England had help from the ‘Bank of Mum and Dad’. A similar pattern is seen when it comes to how much financial help buyers received. In England, buyers in London received the most – an average of £30,600 from friends and family.
In fact, the parents are stretching much to help first-time buyers. The research showed that the majority (71 per cent) used cash savings to help their loved ones buy. But one in five (20 per cent) downsized their own home while 16 per cent used pensions savings, taking a cash lump sum from their pension pot to help.
The ‘Bank of Mum and Dad’ has indeed emerged as a critical component of the UK housing market and the stakeholders concerned must take note. There is a need for a paradigm shift in delivery of homes to buyers, especially first-time buyers.Source: Legal & General