Homes across the UK are becoming more and more unaffordable for people on ordinary incomes. So much so, the so-called Bank of Mum and Dad is one of the fastest-growing lenders in the housing market right now.
According to Legal & General, this relatively new bank pumps more than £6bn a year into Britain’s property market. This cash is used to pay deposits and help with the first few years of mortgage repayments. And without it, the housing outlook might look a lot different.
Of course, this shouldn’t be anything to be proud of. While it’s great that parents can help their children get on the housing ladder, this state of affairs illustrates how dysfunctional the market has become.
Around 27% of all buyers in the UK received help to buy their first home from friends and family in 2018, meaning more than 360,000 homes were purchased in this manner. As a result, the current generation of first-time house buyers is the first in over a century to be less well off than their parents. And this situation is simply untenable in the longer term.
Young homebuyers are struggling.
Young people today are squeezed from both sides of the house buying process. They’re facing spiralling house prices that are well beyond the reach of average earners. And they’re facing a lifetime of meagre wage growth. “Generation Rent” is the result, and it’s leaving millions of young people without a chance of owning their own home anytime soon.
According to Marks & Spencer Bank, around a fifth of Millennials believe they’ll never be able to purchase a home of their own. And this is why the Bank of Mum and Dad is currently thriving.
After all, where else would you get an interest-free lump sum to help you get on the property ladder?
What is the UK Government doing to help?
The UK Government has been trying to tackle this issue for years. But some industry analysts think the measures taken thus far have made things worse.
The likes of the Shared Ownership Scheme and the Help to Buy: Equity Loan have allowed many people to buy their first home. But there’s evidence that such schemes are fuelling house price rises. And there’s concern that the primary beneficiaries are the housebuilders.
Is there any help for mum and dad?
Parents thinking about helping their children get on the property ladder should first seek advice from an expert. Around 71% of parents use their cash savings to fund their children. And more than a third sell their property or unlock equity. More and more parents are downsizing to raise cash — which is a huge move.
It would be best to be sure that you’re going about things in the right way before you commit to anything. And it would help if you were sure that all other avenues had been exhausted.
A new mortgage product to tackle the issue
In recent years, a new mortgage product has sought to offer a more sensible solution. The Post Office is currently offering the Family Link mortgage, allowing parents and their children to pool resources to fund a home purchase.
The lender (child) gets a mortgage of 90% of the property’s value, the remaining 10% secured against the guarantor’s (parent) property. Thus, the child doesn’t have to save a deposit and the parent dip into their savings.
The family offset mortgage is also growing in popularity. Parents can offset their savings against the child’s mortgage, ensuring both parties get what they need with minimal risk of financial impact.