Parents are helping their children get a financial footing on the property ladder, as the Bank of Mum and Dad becomes one of the UK’s top mortgage lenders.
In a report by Legal & General, parents are now contributing £24,100 to homebuyers on the UK market, up by more than £6,000 compared to 2018’s figures – rising by a third year-on-year (YOY).
In total, the Bank of Mum and Dad is now lending £6.3bn out annually, up 10 per cent YOY. Put into context, this would make UK parents the 10th highest lender when compared to the high street banks in 2018 – Clydesdale Bank occupied the number 10 spot, lending £5bn.
Top 10 mortgage lenders in 2018
1. Lloyds Banking Group (£42.5bn)
2. Nationwide (£35.7bn)
3. Royal Bank of Scotland (£30.5bn)
4. Santander UK (£28.3bn)
5. Barclays (£23.1bn)
6. HSBC Bank (£21.5bn)
7. Coventry Building Society (£9.2bn)
8. Yorkshire Building Society (£8.7bn)
9. Virgin Money (£6.8bn)
*** BANK OF MUM AND DAD (£6.3bn) ***
10. Clydesdale Bank £5bn
(Source: UK Finance)
The breakdown of the Bank of Mum and Dad
According to L&G’s report, millennials are currently the most reliant on borrowing money from their parents to get onto the property ladder, with 60 per cent of buyers in this age category needing that extra financial support. Yet it isn’t just the younger generation borrowing from the Bank of Mum and Dad, with the older buyers also turning to their parents for an extra cash boost.
Of buyers aged between 33-44, 43 per cent receive financial help, whereas 26 per cent of buyers aged between 45-54 are also borrowing money off their parents.
In total, the report suggests that one in five housing transactions are made with the help of the Bank of Mum and Dad, and over a third of buyers looking to purchase a new home in the next five years are expecting to get that extra financial support.
When looked at regionally, London leads the way for the highest reliance on the Bank of Mum and Dad borrowing on average £30,600. Buyers in the East and West Midlands are borrowing £17,300 and £14,700 respectively, and parents in the Yorkshire and Humber regions are lending £16,900 to help their children to get on the housing ladder. The North East (£12,000) and Scotland (£10,800) had the lowest regional averages.
Where’s the money coming from?
Of the 1,600 parents who took part in the survey, a fifth of participants said they felt it was their personal responsibility to make sure they made it onto the property ladder by helping their children out financially.
Chris Knight chief executive of L&G's Retail Retirement division said: “Parents and grandparents want to see their loved ones settled in homes of their own and are giving generously as part of the Bank of Mum and Dad.”
According to the survey, 71 per cent of parents said they are using their cash savings to help support their children, whilst 20 per cent said they were downsizing their own home so they could lend money to their children.
Taking money out of their savings pot (16 per cent) and releasing equity on their home (14 per cent) were two other popular ways the Bank of Mum and Dad found the finances to help their kids get a strong footing on the property ladder.