Bank of Mum and Dad Set for Lending Spree

Yet more evidence has emerged underlining the role played by the Bank of Mum and Dad in helping the younger generation move into the property market.

Recent research shows that in 2016, the Bank of Mum and Dad looks set to lend £5 billion. It will be instrumental in facilitating 25% of all the UK’s property purchases, providing deposits for over 300,000 mortgages on homes worth £77 billion. This prodigious amount of lending will rank the home-grown bank amongst the top ten UK mortgage lenders.

Gifts and loans for deposits

The survey, carried out by Legal & General¹, illustrates how unaffordable property has become for many first-time buyers. The amount provided by parents and grandparents averages £17,500, or around 7% of the average price of the property purchased.

Of these contributions, 18% are in the form of interest-free loans, 57% are outright gifts, with only 5% made as loans repayable with interest.

Not once but twice

Parental contribution doesn’t end with that first all-important step onto the housing ladder. Research from Lloyds Bank² estimates that almost one in five ‘second steppers’ need to receive a further cash injection from the Bank of Mum and Dad in order to move further up the housing ladder, this time needing around £22,000 in order to complete their purchase.

Pressure on young and old

In some quarters fears have been expressed that if prices continue to rise at the current rate, the Bank of Mum and Dad could face its own funding crisis. Whilst parents are eager to offer much needed support, they need to ensure that they retain enough cash for their later years.

1 Legal & General, May 2016
2 Lloyds, Second steppers still need ‘Bank of Mum and Dad’, October 2015.