The UK’s parents are set to lend as much as the UK’s ninth biggest lender, Yorkshire Building Society, over the course of this year according to new research from Legal and General and economic consultancy Cebr. They have found that the ‘bank of mum and dad’ are likely to lend more than £6.5bn to help their children buy their first house and get themselves on the property ladder.
In a market that is proving challenging for many, first time buyers are struggling to afford homes and the large deposits they will need to put down on them. As a result, parents are coming to the rescue to the tune of tens of thousands of pounds to help with the deposit, legal fees and other general costs of buying a property.
The amount which is predicted to be lent by parents this year means that parents will be involved in more than 25% of all the property transactions taking place in the UK which equates to providing deposits for more than 298,000 mortgages.
In 2016, parents lent or gave their children an average of £17,000 towards a deposit, this is predicted to rise to £21,600 in 2017. Due to higher house prices in the South West and London, the largest contributions have understandably come from parents in these areas at around £30,000.
Although, millennials are the ones expected to gain the most from this monetary help, with around 79% of parental contributions going to those under 30, children over 30 are also expected to receive a helping hand. This further highlights just how difficult it is for people to get their first steps on the housing ladder whether they are in their early 20’s or late 30’s.
As parents lend more and more money to their children, there are worries that not only is the housing market not working properly for a significant number of people but also that this level of lending is unsustainable in the long term.
Nigel Wilson, chief executive of Legal and General, spoke to The Guardian about these worries; “Transaction volumes are down in the housing market, but [parental] funding is growing exponentially. This is not a good thing, nor is it sustainable or equitable for our parents [the lenders] or young people [the borrowers].”
Whilst it is generous for parents to help their children with buying their first house, it does show the stark contrast in opportunities that were available to baby boomers and what is available to the younger generations currently.
As the price of houses, and therefore the cost of deposits, grows, it showcases the dire need to build more houses as quickly and cost effectively as possible to make them affordable for young people, families and the elderly alike.