Such is its lending power that the Bank of Mum and Dad – the network of parents, grandparents, and other relatives and friends who provide financial help to homebuyers – has become the 11th largest lender in the UK. In 2019 it is expected to be responsible for nearly one in five house purchases in the UK, worth around £70bn.
Table 1 shows the impact of the lender on the market by the number of purchases, the value of lending, and the value of the properties bought, according to the fourth annual report on ‘Bomad’ by the Centre for Economics and Business Research and Legal & General.
It shows that while Bomad was clearly affected by harsh economic conditions and a squeeze on household income last year, causing lending to decrease to £5.7bn in 2018 from £6.5bn in 2017, signs of a recovery are evident, with lending forecast to rise to £6.3bn in 2019.
Figures also show that the average individual contribution has risen by £6,000 in a year to an average of £24,100. However, although parents are now responsible for supporting 19 per cent of property purchases, the number being supported has fallen to 259,400 in 2019 from 316,600 in 2018.
The researchers suggest this is partly a reflection of a slowdown in the market, with fewer property transactions taking place overall.
Around 35 per cent of those planning to buy in the next five years say they will rely on Bomad. UK house prices are at their weakest since 2013 and prices have been falling in places where affordability is most stretched, such as in London. Mortgage rates, however, are at record lows and there is great competition in the market.
So what’s behind the rising contributions? The research found that Bomad lenders are contributing more because they’re helping to buy bigger properties. Three bedroom houses and flats were purchased by 44 per cent of respondents.
Not surprisingly, it’s not just the younger, first-time buyers who need to make use of parental help. Some 36 per cent of those aged between 35 and 44, and 22 per cent of those aged 45 to 54 received help with their most recent property purchase from Bomad.
In 59 per cent of cases, the money is a gift with no expectation of repayment. Fourteen per cent of borrowers receive a mixture of loan and gift, while only 6 per cent of those receiving help were charged interest.
Many Bomad lenders plan ahead, saving into Isas, specific savings accounts and investing in shares and other assets, with a view to helping a loved one with their property purchase in the future. Just 9 per cent have cashed in a lump sum on their pension, but 6 per cent have postponed their retirement in order to help a loved one, 4 per cent have remortgaged their own homes, and 6 per cent have taken out a loan specifically to help with a property purchase.
Unfortunately, 15 per cent of Bomad lenders say they have had to reduce their standard of living as a result; 11 per cent feel less financially secure because of the money they have given, and 26 per cent say they are not confident that they will have enough to live on.