Around one in five parents and grandparents aged over 55 accept a lower standard of living to help family onto the housing ladder, according to research.
The Bank of Mum and Dad helps more than one in four homebuyers, contributing to almost 317,000 property purchases in 2018 alone, a recent report from Legal & General and the Centre for Economics and Business Research (CEBR) found.
One in five (20%) of those providing help to their children downsized their own home to do so, whilst 16% used pension savings.
Parents contributing less
An estimated 27% of all buyers will receive financial support from family or friends this year, up from 25% last year. However, parents are contributing less than they have in previous years, with £18,000 the average sum given in 2018, down from £21,600 in 2017. In total, the Bank of Mum and Dad will support the purchase of property worth £82bn this year.
In the majority of cases, it is parents who give money, but 108,000 purchases have been supported by grandparents, family members and even friends. Buyers aged 35 and under are most likely to receive help, with 59% of people in this age group benefitting from financial support from family or friends. In contrast, just 8% of over 55s received help to buy, with many older homeowners likely to be Bank of Mum and Dad lenders themselves.
The amount contributed by friends and family to help with property purchases varies widely across England. Homebuyers in London, where property prices are higher, get the most help from family and friends, typically receiving an average of £30,600. Average contributions in the South East and the South West are £21,700 and £19,300 respectively, whilst those living in the North East receive the smallest contributions, at an average of just £12,000.
In Scotland, the average amount put forward by friends and family is £10,800. In total, the value of Bank of Mum and Dad lending in 2018 is expected to be £5.7bn.
Options for parents wanting to help children
There are lots of different options available for parents hoping to help their children onto the property ladder, other than simply handing over a lump sum towards their deposit. For example, some lenders will allow parents to use their own property as collateral so that their child can get a mortgage.
Other lenders may permit family members to borrow against part of the equity in their home. Parents can then gift the amount borrowed to the homebuyer so it can make up their deposit.
Alternatively, there are mortgages which enable parents to keep a percentage of the purchase price in a separate savings account with the mortgage lender if the child doesn’t have a deposit available. Parents can access their cash at the end of a fixed-rate period, as long as all payments have been met.
However, if you’re considering doing this, remember that the lender can call on this if the child doesn’t keep up with their mortgage payments.
Bank of Mum and Dad feeling the financial strain