The Bank of Mum and Dad has unofficially become Britain’s ninth-biggest “mortgage lender” with loans and gifts from family or friends increasing 30 per cent this year to £6.5bn as house prices keep rising.
The scale of lending from the “Bomad”, which now helps fund 26 per cent of all UK property transactions, puts it on a par with Yorkshire Building Society, the ninth-biggest residential lender in Britain, according to new research.
For those under the age of 35, the proportion seeking help from parents, friends and family for property purchases stands at 62 per cent.
The number of transactions in which family plays a role is just under 300,000, according to the study by Legal & General. The insurer first assessed the scale of Bomad lending for home purchases last year, when it said £5bn was lent. This year 42 per cent of prospective homeowners expect to get help from relatives, up from one-third last year.
House prices rose 7.3 per cent on average in 2016, according to the house price index produced by the Office for National Statistics. Price growth has subsequently fallen back to 5.8 per cent in the year to February. The average house price was £218,000 in February, £12,000 higher than in February 2016.
Nigel Wilson, chief executive of Legal & General, said the lending rise was a symptom of a broken housing market, where demand outpaced supply.
“The intergenerational inequality that creates the demand for Bomad funding continues to widen,” he said. “Younger people today don’t have the same opportunities that the baby boomers had, including affordable housing, defined benefit pensions and free university education.”
But the slackening pace of house price growth has done little to help aspiring homeowners, the research found. “The ONS calculates an average working person could expect to pay 7.6 times their annual earnings when purchasing a home in England and Wales in 2016 — more than double the 3.6 times earnings they would have paid in 1997,” said the report, which was based on a survey of 1,000 adults carried out in February.
The surge in parental lending comes in spite of record low rates on mortgages, fuelled by intense competition between lenders for new business and a drop in the Bank of England base rate to 0.25 per cent.
But while mortgage repayments have never been more affordable, high prices in some parts of the country mean first-time buyers without large deposits can struggle to qualify for loans under tight lending rules.
Yorkshire Building Society last month launched a record low interest rate of 0.89 per cent in a two-year discounted variable rate deal. But it asks borrowers for a deposit of 35 per cent, a level that would shut out many first-time buyers.
The ONS house price index shows wide variation in prices by region, with an average price in London of £475,000 compared with £124,000 in the north east, the cheapest region.
But the Legal & General research found little evidence of matching variation in the amount that parents give, with contributions to purchasing in London averaging £29,400 against £24,200 in the north east. “Parents largely seem to decide on a fixed amount they will contribute regardless of the location of the purchased property,” the report said.