The bank of mum and dad has been a longstanding source of funding for people looking to make their first move in the UK property market, with mum and dad part or sometimes even fully funding their property purchase. With the way that the property market has developed over the years, combined with continuously changing regulations and tax charges, it has become increasingly difficult for first time buyers to pay their own way onto the property ladder. As a result of this, the bank of mum and dad has been constantly relied upon across the UK for a number of years now, and that trend appears to be continuing in 2018.
Bank of Mum and Dad Lending set to Increase in 2018
According to both Legal & General and Cebr following research and new forecasts, it is said that the bank of mum and dad will account for almost £6bn of lending for property transactions in 2018 alone. This source of funding has been a key contributor to the market for a number of years now, and with that figure, it is known to be continuing to have an impact. Compared to 2017, there is an increase of 2% from 25% to 27% of property buyers relying on support from family or friends when purchasing their property.
For property purchases using the support of the bank of mum and dad, the value of transactions in 2018 is estimated to increase to almost £82bn, which is up by more than £4bn when compared to 2016. However, those borrowing from their parents appear to be receiving less, even though the amount of people borrowing this way is set to increase. Although not as high as the £6.5bn peak in 2017, the £5.7bn of lending from the bank of mum and dad in 2018 is still set to outshine the £5bn of lending from two years ago.
Group Chief Executive of Legal & General, Nigel Wilson, said: “The Bank of Mum and Dad remains a prime mover in the UK housing market, and will lend the best part of £6bn to buyers this year, with over 315,000 transactions being underpinned by parental help.”
The Effects of the Bank of Mum and Dad
As the bank of mum and dad are contributing so heavily to transactions within the UK property market, it is clear to see that getting onto the property ladder without their help is something that isn’t easily achievable. For those aged between 35 and 44, 43% of people receive financial help from their parents, whilst 26% of those aged between 45 and 54 are also supported by their parents.
People aged between 45 and 54 are likely to have their own children and be at the highest rate of salary that they are likely to earn in their lifetime, suggesting just how much people struggle to purchase their first house, increasing the average age of a first-time buyer to above 30 in many areas throughout the UK.
The act of funding a part of or all of their child’s first property is also having an impact on the parents themselves, leaving many suggesting that they feel less financially secure after supporting their children. They also had to watch their money more carefully after helping their children financially, cutting back on certain luxuries like holidays or lifestyle purchases that they may have more happily bought previously.
As a result, and as a way of reducing the need for financial support from parents, it has been said that more affordable houses will be built, with the Government looking to build 300,000 homes over the next few years. If more affordable housing was to be built in the UK, it would reduce the pressure on parents lending money to their children, whilst also allowing people to be able to afford to get onto the property ladder at a younger age.