Analysis and research by Legal & General and the Centre for Economics & Business Research (Cebr) shows that, in 2016, home buyers will receive £5 billion of help from families' and friends – equivalent to the annual lending of a top-ten mortgage business.
For many aspiring homeowners, it is impossible to buy without help from family and friends. On the other hand, recent decades have been much kinder to the baby boomers who now control the lion's share of the nation's wealth. Beneficiaries of the increase in the value of their homes and with good pensions and significant savings, many are in a strong position to help. And they are generous in doing so:
The latest research shows the Bank of Mum and Dad will help 305,900 of their loved ones buy a home in 2016, giving an average of £17,500 to each to fund the purchase of £77bn worth of property. This means the Bank of Mum and Dad will be involved in 25% of all mortgage transactions in 2016.
A quarter of all home owners, 32% in London, and 57% of the under 35s received help from friends and family to buy the home they live in. That proportion will grow in future: A third of all prospective home owners say they will get help when they buy.
As prices rise, wages trail and affordability worsens in coming years, an increasing number of house buyers across the country will rely on friends and family to plug the gap. How long they can do so is open to question.
The pace of house price increases, however, threatens to stretch family’s 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.
There are opportunities for The Bank of Mum and Dad to expand. Releasing equity among the over 55s who already own their home is, at present, barely used. Only 3% in our survey had taken the opportunity, and another 3% said they were considering it. Even that represents a vast source of wealth, though, which could help house 413,000 more families. Lifetime mortgages would appear to be an ideal solution for many families looking to unlock their accumulated property wealth without having to move home. There might be opportunities in new solutions such as peer-to-peer lending, too.
Things are even worse for those families living elsewhere who try to finance their children buying in the capital or other property hot spot. 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.
Nigel Wilson, CEO of Legal & General, said: “The Bank of Mum and Dad continues to grow in importance in helping young people take their early steps onto the housing ladder. The intergenerational inequality that creates the demand for Bank of Mum and Dad funding continues to widen – younger people today don’t have the same opportunities that the baby-boomers had, including affordable housing, defined benefit pensions and free university education. Parents want to help their kids get on in life, and the Bank of Mum and Dad is a testament to their generosity, but it is also a symptom of our broken housing market.”