With over 25 years of experience helping home movers across Warwickshire to find the house of their dreams; Shortland Horne know more than most about the challenges faced by first time buyers.
Not least amongst those hurdles is raising a deposit. Tightened lending criteria and a cautionary approach to lending to first time buyers from the banks has led to increasing difficulty for those desperate to take the first step on the property ladder.
As a result an increasing number of people are turning to relatives and friends for financial help. In 2016 over a quarter of house purchases were funded with help from parents – otherwise known as the ‘Bank of Mum and Dad’.
Rising from 10th place in 2016, it is now equivalent to the ninth largest UK mortgage lender, with recent research indicating that it will lend over £6.5 billion this year. This can be compared to the £5 billion which was lent last year. The findings by Legal & General and the Centre for Economics and Business Research consultancy revealed that this figure fell just behind Yorkshire Building Society, which lent £6.6 billion during 2016.
Last year, parents contributed to over 298,000 mortgages, a portion which is equivalent to 26% of transactions. Rather than going towards mortgage repayments, the majority of the money will be used to fund a deposit; 70% is used by those under 30.
Commenting on the research was Nigel Wilson. The Chief Executive of Legal & General highlighted the difference in economic opportunities available to the younger generation, stating: “The Bank of Mum and Dad continues to grow in importance in helping young people take their early steps onto the housing ladder.
“The intergenerational inequality that creates the demand for BoMaD funding continues to widen – younger people today don’t have the same opportunities that the baby-boomers had, including affordable housing, defined benefit pensions and free university education.”
“Parents want to help their kids get on in life, and the Bank of Mum and Dad is a testament to their generosity, but it is also a symptom of our broken housing market.”
Rising from 33% to 42% over the last year, the number of buyers receiving financial help has rapidly grown. Over the same period, the amount contributed by the Bank of Mum and Dad has risen by 23%, up to £21,600.
Despite the rise in the amount of money given, the number of properties purchased using cash is likely to fall this year. This is due to the market slowing down, and overall transaction volumes dropping.
Shortland Horne MD David Shortland said: “The UK is experiencing a supply-side crisis in housing – we are simply not building enough houses. We need to build more homes for the young, old and families alike – more quickly and cost effectively.”