‘The bank of Mum and Dad’ will lend enough money to the next generation of UK homeowners in 2018 to make it the equivalent of a top 10 Mortgage Lender. With £5.7bn expected to be handed over to help family members get a foot on the property ladder this year, you could be excused for thinking that things were on the up. Everything is relative, however, and when compared to 2017’s enormous lending figures of £6.5bn, the numbers tell a different story.
L&G are still expecting more than a quarter of home buyers to be getting financial assistance from relatives, with the amount actually seeing a small increase from 25% to 27%. So, with close to 317,000 housing transactions expected to take place with parental help this year, how do we account for the £800m drop in lending?
The short answer is that, due to the current position of the economy as a whole, people are feeling the pinch. Although the sheer volume of individual transactions is increasing, the amount parents are able to provide is going in the opposite direction. In 2017, the average parental contribution was £21,600, in 2018 that figure is expected to be down 17% at £18,000.
Interestingly, although unsurprisingly, this is a regional phenomenon, with a higher percentage of buyers in London (41%) receiving help from their relatives. The age of the buyer does not affect the likelihood of lending from parents, as approximately 20% of those borrowing from parents are aged between 45 and 55.
We’re also seeing a growing trend of parents ‘gifting’ their children money that they would otherwise have received years later through inheritance. Not only does this make the money less likely to be liable to inheritance tax, it also means that the future buyer can get on the property ladder earlier and thus avoid future increases in house prices. For many in financially comfortable positions, this may well be an avenue worth considering.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article).
Reference – BL032 – Aug – 18