The ‘Bank of Mum & Dad’ will play an increasingly critical over the next 4-5 years in helping first-time buyers step on to the property ladder in the UK.
‘Building on the Bank of Mum and Dad’, an independent report commissioned by the Building Societies Association, revealed that more than half (59 per cent) of aspiring first-time buyers expected the ‘Bank of Mum and Dad’ to support them onto the housing ladder.
The number of first-time buyers reached an all-time high in 2018 while they were 360,000 in 2017. The baseline number of new first-time buyers every year should be nearer 450,000. The ability to buy is increasingly concentrated on dual-earning households and those with higher incomes.
The ‘Bank of Mum and Dad’ isn’t necessarily all about parents and grandparents handing over cash in the form of gifts or loans. Lenders facilitate support between generations by parents providing guarantees or using their property or savings as security for the first-time buyer’s mortgage. Parents also release money through an equity release mortgage or by downsizing.
However, all of these are comparatively small relative to the more direct support from family members’ financial resources.
According to the Building Societies Association, product innovation in this market is starting to increase the options beyond straight gifting. For instance, 59 per cent of building societies will accept a deposit from family members as security; 33 per cent will accept a charge over the property of family members to ease affordability barriers and 10 per cent offer family offset mortgages.
Robin Fieth, BSA Chief Executive said: “Home ownership remains a fundamental ambition for the majority of people. Against the challenging backdrop of high prices, a woefully inadequate supply of homes and a growing intergenerational divide, new ideas and strong debate are essential. Family help – the so-called ‘Bank of Mum and Dad’ - is great for those fortunate enough to have this option, but innovations in underwriting could help all potential first-time buyers.”