Breaking the Bank of Mum and Dad
29th May 2018
When it comes to raising cash for your first home, it looks like the “bank of Mum and Dad” is well and truly open for business. Last year alone, British parents lent their offspring £6.5 billion to help them leave the nest. Looking ahead, 2018 is set to continue the trend with an incredible 1 in 4 housing transactions being assisted by family loans. That's over 316,000 people predicted to be supported in almost £82 billion worth of property purchases!
It's actually a little unfair to even call it the bank of Mum and Dad. Of the 316,500 forecast property purchases supported this way in 2018, 45,500 will come from grandparents. Another 63,300 will be from other family members or friends.
Which age group relies most on the "Bank of Mum and Dad"?
In general, we're talking mostly about homebuyers under 35 here. That's the age group most likely to benefit from the bank of Mum and Dad. There are still plenty of other age groups to consider, though. Families are acting as mortgage lenders for:
- 59% of under-35s.
- 43% of people aged 35-44.
- 26% of people between 45 and 54.
- 8% of over-55s.
How much are families lending each other?
Those numbers are obviously pretty impressive – but that doesn't mean they're actually good news. In fact, there are signs that parents are starting to struggle under the strain. While the number of loans made by parents is going up, the amounts involved are actually dropping. That £6.5 billion figure we mentioned from last year will be lucky to hit £5.7 billion in 2018. In fact, average loans amounts are dropping fast, from £21,600 in 2017 to just £18,000 now.
A lot of this comes down to location. 41% of recent buyers in London got help from Mum and Dad, for example. Meanwhile, only about half that number of recent buyers in Northern England did the same. How much is being lent also varies by area, with the latest rankings broadly matching local price ranges:
- London = £30,600
- South East = £21,700
- South West = £19,300
- East of England = £17,900
- East Midlands = £17,300
- Yorkshire and the Humber = £16,900
- West Midlands = £14,700
- North West = £12,900
- North East = £12,000
- Scotland = £10,800
Where are the parents getting the money from?
As for where all this money's coming from, that's where things get tricky. 71% of those loans are funded by raiding cash savings, which can be painful enough for most families. About 1 in 5 family lenders are accepting a lower standard of living by making loans. They might be delaying purchases of their own or cancelling holiday plans, for instance. Where that's not enough, though, parents are finding themselves digging even deeper:
- 20% end up selling their own homes, “downsizing” to cheaper ones.
- 16% are burning through their pensions with a cash lump sum.
- 14% are releasing the equity of their homes to free up the money.
- 7% are resorting to a re-mortgage arrangement.
Why are so many people relying on their parents to buy houses now?
While house prices are at their weakest now since 2012, they're expected to start climbing again. Prices in England and Wales were still close to 8 times the annual earnings of full-time workers in 2017. Meanwhile, over 1.3 million households are sitting on council waiting lists in what's being widely called a housing crisis. We're looking at about 210,000 new households per year until 2039, and we aren't building nearly enough homes for them.
The good old bank of Mum and Dad is a British institution, but it doesn't solve the housing market's problems. In fact, if anything it brings a whole new range of issues with it. Not everyone's lucky enough to be able to fall back on family finance, for one thing. How are their parents supposed to feel about that?
More to the point, what's going to happen when today's 20 and 30-somethings start feeling the same pinch as their own parents do right now? With so many carrying their own debt much later in life than previous generations, shouldering their children's burdens as well may simply not be an option. The bank of Mum and Dad is a shaky fix for a deep-rooted problem – and the challenge now facing the government and housing industry is finding a real, sustainable solution.
If you're saving for a place of your own, check if you're due a tax rebate with RIFT. Every little extra you can add to the pot helps and a lot of our customers tell us that they're saving up their annual refunds for a deposit.