It’s no secret that more and more people are relying on the Bank of Mum and Dad to get on the property ladder.
But new research reveals that parents will stump up more than £5bn in 2016 to help their children in 2016.
The report from Legal & General (L&G) said the Bank of Mum and Dad’s hefty contribution will provide deposits for more than 300,000 mortgages and help in the purchase of homes worth £77bn.
The figures mean the Bank of Mum and Dad will be involved in 25% of all property transactions in the UK market this year, making it the equivalent of a top-10 mortgage lender.
Nigel Wilson, CEO of Legal & General, said: “The Bank of Mum and Dad plays an increasingly vital role in helping young people take their early steps on the housing ladder.
“But the generosity being displayed by UK families doesn’t make up for intergenerational unfairness – younger people today don’t have the advantages the baby-boomers had, including cheap housing that delivered windfall gains.”
Mr Wilson said it was “natural” for people to want to help family members.
“Relying so heavily on the Bank of Mum and Dad however risks increasing inequality as many young people today are not lucky enough to be able to access parental support when buying a home, or can’t afford to buy even with parental help.
According to L&G’s research, the average financial contribution of the Bank of Mum and Dad is £17,500 or 7% of the average purchase price.
More than three quarters of so-called ‘BoMaD’ purchases – amounting to 256,400 – will be helped by the buyer’s parents, with a further 22,500 and 27,000 supported by grandparents and other family members or friends.
The report suggests that 57% of Bank of Mum and Dad contributions are gifts, 18% are loans with no interest and 5% are loans with interest.
But Mr Wilson said there is a “supply-side” problem in that the UK is “simply not building enough houses”.
“We need to build more, especially as the Bank of Mum and Dad could soon start to experience a funding crisis of its own.”
The difficulty comes when families use so much of their net wealth to help their offspring that they put their own financial stability at risk.
According to the report, the Bank of Mum and Dad won’t run into a nationwide ‘funding crisis’ for another generation, in 2035.
Mr Wilson said a new “innovative approach to housing” is needed to reduce reliance on the Bank of Mum and Dad and government initiatives like Help to Buy.
“Helping first-time buyers is necessary – but not the whole solution," he said.
“We need to modernise housebuilding and make it more efficient so that we can increase supply and quality for all forms of tenure, and all income and age groups, from students to pensioners.
“Institutions like Legal & General can regenerate not just residential housing, but the towns and cities in which the homes are built.
“Infrastructure, jobs and local economic growth are all key to creating thriving communities where people want to live.”