"The Bank of Mum and Dad" is lending over £5 million towards buying homes, making them equivalent to a top ten mortgage lender, new re…
"The Bank of Mum and Dad" is lending over £5 million towards buying homes, making them equivalent to a top ten mortgage lender, new research has found.
The study, which was conducted by Legal & General, showed that parents will provide deposits for over 300,000 properties in 2016, which will equal home purchase costs of around £77 billion.
Parents will contribute 25 per cent of all property buying that will take place in the UK this year, meaning they will be more actively involved than many mortgage providers.
However, despite this generosity from parents, it doesn't make up for intergenerational unfairness. Young people today don't have the benefit of cheap housing that quickly rises in value which baby-boomers enjoyed, according to Legal & General.
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."
There is a worry though that relying on parents for house deposits is increasing inequality, as many young people aren't lucky enough to be able to ask their parents for financial support to take this step.
The average contribution that parents are making is £17,500, which equates to around seven per cent of the average purchase price. Of these contributions, 57 per cent are gifts, 18 per cent are loans with interest and five per cent are loans with interest.
The amount of support given by parents seems to be dependent on which part of the country they reside in.
Inevitably, the capability of parents to provide this support will come to an end, and London parents are already contributing around 51 per cent of their earnings to this. This level is not expected to be reached in the south-east until 2025, while for the east of England this won't happen until 2028.
For those that live outside of London but whose children are living in the capital, this situation is even more critical. PArents and grandparents are already dedicating 64.1 per cent of their household net wealth to help children onto or up the property ladder.
"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," Mr Wilson stated.