The ‘Bank of Mum & Dad’ continues to grow

Posted on May 4th, 2016 | Categories - News

The ‘Bank of Mum & Dad’ continues to grow 150pxThe ‘Bank of Mum & Dad’ continues to grow, in fact, new research shows that if it were actually a bank or building society, it would make it into the top 10 largest mortgage lenders in the UK.

The research, from Legal & General, shows just how vital ‘the Bank of Mum & Dad’ is to the UK housing market.

According to the findings, it will lend over £6 billion in 2016, providing the deposits for over 300,000 mortgages and help ‘traditional’ banks and building societies lend nearly £80 billion in 2016.

The research also revealed that:

  • ‘The Bank of Mum & Dad’ will be involved in a quarter of all mortgage transactions in 2016
  • Around 80% of the assistance comes from parents with a further 20% from grandparents and wider family
  • Just over half of all financial help, 57%, is an outright gift, however 18% of parents expect to be repaid, but charge no interest
  • Around 5% of parents charge their children interest

Closing soon?

There are storm clouds on the horizon though.

With mortgage lending criteria still relatively tight and house prices continuing to rise, there are concerns that ‘the Bank of Mum & Dad’ could soon run out of cash. At present withdrawals by children in London account for 50% of their parent’s net wealth, excluding their own property investments.

The thought of parents giving away, or occasionally lending, 50% of their entire asset base to help their children is staggering and could potentially leave them exposed in years to come.

If this trend continues nationwide it is clear that ‘the Bank of Mum & Dad’ could soon run out of capital.

Commenting on the research, Nigel Wilson, CEO of Legal & General, said: “If we are ever to end or reduce our reliance on the Bank of Mum and Dad (and Government initiatives such as Help to Buy 2) we need a new innovative approach to housing. Helping first-time buyers is necessary – but not the whole solution. 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.” (Source: Legal & General)

Are you thinking of lending your children money to help them get onto the housing ladder?

Before you take the leap, there are a number of things you should consider.

Check back here soon, when we will explain all the things you need to think about before you let your children make a withdrawal from ‘the Bank of Mum & Dad’.

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