LONDON — Cash is pouring into Britain’s housing market more than ever before, as it becomes increasingly skewed in favour of those who can afford large deposits by using the “Bank of Mum and Dad,” profits from other houses, and funds from inheritance.
Data from the Intermediary Mortgage Lenders Association (IMLA) reported in the Financial Times found that an estimated £418 of every £1,000 used to buy property last year was in cash.
In 2013, when the data started being collected, that figure was £377.
What does that mean? Typically people with access to cash are better-off. At the younger end of the spectrum, the “Bank of Mum and Dad” allows richer young homebuyers to borrow from their parents in order to fund the large deposits required to buy a house, thereby out-pricing poorer people without the same ready access to funds.
First-time buyers who receive money from their parents are able to buy on average 2.6 years earlier across the UK, and 4.6 years earlier in London.
Recent research from Legal & General found that homebuyers received money from their parents to help with a deposit on a quarter of all mortgage transactions in 2016.
Another big source of cash is rising house prices. People who bought a home decades ago are able to make a large profit on house sales, meaning they can outbid first-time buyers who do not have access to large cash deposits.
Peter Williams, executive director of IMLA, told the FT: “Rising house prices and stagnant incomes mean that access to wealth, as well as mortgage finance, will increasingly separate the ‘haves’ from the ‘have nots’ in the property market.”
He said that the Bank of England should introduce rules to make it easier for people without large deposits to secure mortgages.
He said: “The shift towards cash is partly a consequence of trying to manage housing demand by restricting mortgage supply. There is a legitimate case for asking whether current restrictions on lending are still appropriate or have become overzealous.”