Homebuyers hoping to move into their dream house with a conservatory in Manchester may be asking their parents to help them out financially, as the ‘bank of mum and dad’ has effectively turned itself into a mortgage lender and is expected to lend as much as £5 billion in 2016.
According to the latest research by Legal & General and CEBR, parents will help provide deposits for more than 300,000 mortgages before the year is out, making it one of the most popular options for househunters.
Indeed, the ‘bank of mum and dad’ is expected to be involved in one-quarter of all property sales in the UK this year, assisting with the purchase of more than £77 billion worth of homes.
Chief executive officer of Legal & General Nigel Wilson said parents’ generations were able to take advantage of cheap housing, while their children are not fortunate enough to have a property market that is easy to get on to. Therefore, they typically want to help out their children if they can.
However, Mr Wilson foresaw some difficulties with providing financial assistance for homebuyers, saying: “Relying so heavily on the ‘bank of mum and dad’ however risks increasing inequality as many young people today are not lucky enough to be able to access parental support when buying a home.”
The typical amount parents offer to their children is £17,500, which makes up seven per cent of the purchase price on average.
While other mortgage lenders come with high interest fees, the advantage of using this ‘bank’ is 57 per cent of contributions from parents are gifts, while 18 per cent are loans without any interest.
Lender Zopa recently revealed 18 to 35-year-olds are consciously saving to buy a home, with 41 per cent putting aside 10.9 per cent of their monthly salary post tax to bulk out their deposit.