“The Bank of Mum and Dad” is “a major player” in the UK housing market, according to new research — almost two-thirds of under-35 homeowners had help from parents in buying their property.
Insurer Legal & General and the Centre for Economics & Business Research estimated in a new report that parents will pump £5 billion into the property market this year on behalf of their children.
Here are the key findings from the report:
- Parents will help an estimated 305,900 people fund property deals this year;
- “The Bank of Mum and Dad” is involved in around 25% of ALL mortgages — not just first-time buyers;
- Parents lend an average of £17,500;
- Their loans will help fund the purchase of £77 billion worth of property this year;
- 32% of all homeowners in London had help from their parents buying the property. The figure is 25% nationally;
- 57% of under-35s had help from friends and families in buying their house.
The figures help quantify something that most people believe but until now we haven’t really known — that you need rich parents to be in with a chance of getting on the property ladder.
The vast majority of first-time buyers — 57% of under-35s — had a loan or gift from friends or family. These types of buyers dominate the market.
L&G says in the report that “for many aspiring homeowners, it is impossible to buy without help from family and friends.” Here’s a particularly depressing snippet from the report:
Years of house price increases have significantly outpaced rises in wages, particularly since the financial crisis, making property less and less affordable.
Home ownership is at its lowest levels in a generation, and things are only going to get worse. In 2015, the house price-to-income ratio was at its widest since the financial crisis. Cebr forecasts it will pass its 2007 peak within two years.
The need for would-be buyers to turn to their parents is only one side of the coin. The other factor is the fact that the baby boomer generations — parents — are getting richer and richer as “beneficiaries of the increase in the value of their homes and with good pensions and significant savings.”
The report points out that the generation “born between 1946 and 1964 benefited hugely from a boom in homebuilding in the post-war period — and the relative shortage of housing supply since.” Their houses were effectively a winning lottery ticket — they got an asset at a good price that spiralled in value even if they did nothing.
L&G CEO Nigel Wilson says in a release accompanying the report: “The generosity being displayed by UK families doesn’t make up for intergenerational unfairness — younger people today don’t have the advantages the baby-boomers had, including cheap housing that delivered windfall gains.”
So it makes sense from a market dynamics perspective that parents are helping their kids out. But L&G says: “How long they can do so is open to question.” Here’s the report again:
The pace of house price increases, however, threatens to stretch families finances to breaking point. In 2016, the average family contribution towards a loved one’s home is 37% of an average household’s net financial wealth, excluding property wealth. By 2035, we predict it will be more than half. For those buying in London, it already is, and the South East and East of England will follow soon.
In short, house price rises trump increasing baby boomer wealth. These depressing charts show how unaffordable houses in the UK are:
The question of sustainability also overlooks another big criticism of the current arrangement — inequality. If you don’t have parents who were lucky enough to buy a property, you’re unlikely to get one either. And given that property is one of the biggest assets for UK families, that puts you at a severe disadvantage.
L&G’s Wilson says: “Relying so heavily on the Bank of Mum and Dad, however, risks increasing inequality as many young people today are not lucky enough to be able to access parental support when buying a home, or can’t afford to buy even with parental help.”
L&G concludes in its report: “Fundamentally, for all their generosity, our research shows that families and friends cannot solve a UK housing crisis caused by too few homes. It’s not fair on those without wealthy families, and it’s not sustainable in the future.”
Wilson says: “We have a supply-side problem in housing — we are simply not building enough houses. We need to build more, especially as the Bank of Mum and Dad could soon start to experience a funding crisis of its own.”