03 May 2016
Legal & General, the FTSE100 financial services group and Cebr, the economics consultancy, have today published a new report into the role the Bank of Mum and Dad play in helping their children get on, or move up the property ladder. The research shows the Bank of Mum and Dad will lend over £5 billion, providing deposits for over 300,000 mortgages, purchasing homes worth £77 billion in 2016. The Bank of Mum and Dad is the equivalent of a top 10 mortgage lender in the UK and will be involved in 25% of all property transactions that take place in the UK market this year.
Nigel Wilson, CEO of Legal & General (photo, below), said: “The Bank of Mum and Dad plays an increasingly vital role in helping young people take their early steps on the housing ladder.
“But the generosity being displayed by UK families doesn’t make up for intergenerational unfairness – younger people today don’t have the advantages the baby-boomers had, including cheap housing that delivered windfall gains. People will always want to help family members – it is a natural thing to do. 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, or can’t afford to buy even with parental help.
“We have a supply-side problem in housing – we are simply not building enough houses. We need to build more, especially as the Bank of Mum and Dad could soon start to experience a funding crisis of its own.”
In 2016, family and friends will help 300,000 of their loved ones to buy a home
The Bank of Mum and Dad will help to finance 25% of all UK mortgage transactions in 2016[i]
The Bank of Mum and Dad’s average financial contribution is £17,500 or 7% of the average purchase price;
Over three quarters of “BoMaD” purchases – 256,400 of them – will be assisted by the buyer’s parents - with a further 22,500 and 27,000 supported by grandparents and other family members/friends respectively;
57% of Bank of Mum and Dad contributions are gifts, 18% are loans with no interest and 5% are loans with interest;
£5bn of mortgages will be supported by BoMaD in 2016, making the Bank of Mum and Dad a top 10 lender[ii]
The BoMaD will not run into a nation-wide ‘funding crisis’ for another generation (in 2035), though the regions with the highest and fastest growing house prices will face this problem much sooner.
London is already at the tipping point when it comes to the BoMaD funding. In 2016 London homeowners that received some financial assistance from family and friends, got an average of 6.2% of their home’s total purchase price from the Bank of Mum and Dad. This represents 51.0% of the average BoMaD household net wealth in London (excluding property assets). In the South East, the average family contribution towards a loved one’s home purchase will cross the 50% mark in 2025 while for the East of England this will happen in 2028. Families clearly cannot continue to use all of their net wealth to help their offspring onto the housing ladder without putting their own financial stability at risk.
This situation is even worse for those families that live in a region with lower household wealth, but whose children are looking to buy a property in one of the more expensive regions. In 2016, those families that live outside of London, but whose children or grandchildren do live in the capital will dedicate an average of 64.1% of their household net wealth to helping them onto or up the property ladder.
Nigel Wilson concludes:
“If we are ever to end or reduce our reliance on the Bank of Mum and Dad (and Government initiatives such as Help to Buy 2) we need a new innovative approach to housing. Helping first-time buyers is necessary – but not the whole solution. We need to modernise housebuilding and make it more efficient so that we can increase supply and quality for all forms of tenure, and all income and age groups, from students to pensioners. Institutions like Legal & General can regenerate not just residential housing, but the towns and cities in which the homes are built. Infrastructure, jobs and local economic growth are all key to creating thriving communities where people want to live.”
- ENDS -
[i] BoMaD will be involved in 300,000 transactions out of 1,250,00 predicted for 2016 https://www.cml.org.uk/news/news-and-views/market-commentary-december-2015/
|Rank 2014||Rank 2013||Name of group||2014 £bn||2014 Estimated market share||2013 £bn||2013 Estimated market share|
|1||(1)||Lloyds Banking Group||40.3||19.8%||35.5||20.0%|
|3||(2)||Nationwide Building Society||26.9||13.2%||26.9||15.1%|
|5||(6)||The Royal Bank of Scotland||19.7||9.7%||14.3||8.0%|
|(7)||Yorkshire Building Society||7.6||3.7%||6.8||3.8%|
|8||(8)||Coventry Building Society||7.4||3.6%||5.9||3.3%|
|Region||Estimated value of BoMaD lending in 2016|
|Yorkshire and the Humber||£384,228,570.11|
|East of England||£840,490,568.04|
|Region||Value of purchased homes (£bn)|
|Yorkshire and the Humber||3.8|
|East of England||14.1|
|Region||Number of supported transactions|
|Yorkshire and the Humber||21,393|
|East of England||47,256|
NB: The regional figures may not add up to the UK total in some instances because the survey conducted as a part of the research did not cover Northern Ireland. Therefore, figures for Northern Ireland are not presented. In order to calculate the UK level figures the data for the rest of the country was proportionally scaled up to account for the difference in geographical coverage.
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Established in 1836, Legal & General is a leading provider of insurance, savings and investment management products in the UK. The Group has a market capitalisation of £14.9bn (as at 31st December 2015) and is responsible for investing £746bn worldwide (as at 31st December 2015) on behalf of investors, policyholders and shareholders. Legal & General has over seven million customers in the UK for life assurance, pensions, investments and general insurance plans and over one million customers in the US who rely on us for life assurance. In 2015, Legal & General's operating profit (on the IFRS basis) was £1,455m and adjusted earnings per share were 18.58p for the period, an increase of 14% and 11% respectively.
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