THE ‘BANK OF MUM AND DAD’ isn’t a new phenomenon, but research shows gifting has been on the rise. One in every two first-time buyers (56%) aged under 35 received financial support from the Bank of Mum and Dad to help them step on the housing ladder, according to research[1].
Nearly three-quarters (71%) of these new homeowners would not have been likely to buy without financial help from family or friends. Instead, they would have had to delay their housing plans by four years on average.
HOUSING MARKET
The research showed how the Bank of Mum and Dad stepped in to support loved ones as the economic impact of the pandemic (COVID-19) took hold. A third (33%) of all people looking to buy in the next five years say they plan on getting financial help and support from family or friends.
The Bank of Mum and Dad’s role in Britain’s housing market is ubiquitous. Across the UK, parents, grandparents, family and friends are digging into their pockets to help young, hopeful buyers and even growing families to make their housing plans become a reality. These generous lenders are often funding most or all of the deposit buyers need to step onto or up the ladder.
First-time buyer mortgages typically require deposits of 5-10%, so the funding needed is significant.
Parents can further assist with mortgage eligibility by becoming part of the mortgage arrangement. This would normally be in the form of a guarantor mortgage, where they would guarantee the monthly repayments in the event of the main borrower not being able to pay.
Alternatively, a Joint Borrower Sole Proprietor JBSP mortgage would also be available and works similarly to the guarantor option.
Where it’s not appropriate for a parent to be formally part of the mortgage, they could instead link their savings to a family offset mortgage or family deposit mortgage. Assisting their children financially but without having to fully gift the money away.
In cases where there is insufficient cash savings, parents could look to their home as a source of funds. Equity release plans are a popular way of borrowing into retirement. And lenders now have a greater number of mortgages for pensioners available.
RAINY DAY FUNDS
While the Bank of Mum and Dad is playing a clear and present role for many buyers, with many having to draw on retirement savings and rainy day funds, not everyone is as fortunate to have access to these funds.
The research shows the Bank of Mum and Dad is lending on average £19,000 to first-time buyers under the age of 35, with 21% of respondents in this age bracket saying they received more than £30,000.
FINANCIAL SUPPORT
However, not all first-time buyers will receive the funding as a gift, with 30% expected to pay at least some of it back. It’s not just the under-35s that need financial support, however.
Financial support for home purchases by those aged over 35 will account for £2.14 billion, or 61% of the Bank of Mum and Dad’s total lending. This reason for this figure being high is in part due to older first-time buyers looking for larger, more expensive properties as a home for their growing families.
ECONOMIC IMPLICATIONS
Even with so many relying on the Bank of Mum and Dad for funding, and the country facing up to the economic implications of the pandemic, the Bank of Mum and Dad lenders themselves are still eager to help out. Nearly 74% of those who have seen their incomes fall during recent years say they are no less willing to help loved ones onto the housing ladder.
Source data: [1] Research from Legal & General and Cebr – https://group.legalandgeneral.com/media/ cxihcr20/bomad-under-35s_final-1.pdf
