‘The Bank of Mum and Dad’ (BOMAD) is set to become the 11th largest financial lender in the UK as older relatives offer loans worth a collective £6.3 billion to the younger generation.
Despite the increase in financial support from the BOMAD, the money is being used to fund around a fifth fewer housing purchases when compared with the figures from 2018.
The research, completed by Legal & General and the Centre for Economics and Business Research (Cebr), speculated that by the end of 2019 the money loaned by older relatives will have funded 259,400 property sales; a reduction of 57,200 property transactions from the 316,600 recorded in 2018.
However, the reduced figure in 2019 will still account for a fifth of all property purchases, highlighting their importance in the property market.
This year alone, the BOMAD will help the younger generation, who are becoming increasingly dependent on their older relatives for help, buy property worth in excess of £70 billion.
62% of aspiring home owners under the age of 35 are reliant on parental support to finance their first home move.
Even older adult children require the support of their older relatives in funding their home purchases. Over a fifth (22%) of people aged between 45 and 54 and 7% of people over 55 need to use the financial clout of their ageing relatives to help gain a foothold on the property ladder.
The average financial gift/loan has increased by over a third (33.8%) in the past year. In 2018, the average BOMAD loan was £18,000. However, by the end of 2019, the research predicts that older relatives will now part with over £24,100 to help their younger relations.
Nigel Wilson, group chief executive at Legal and General, said: ““The Bank of Mum and Dad continues to be the ‘iceberg’ mortgage lender beneath the surface of our housing market – all but invisible yet exerting a massive influence, funding purchases across the country and helping people to defy the economics of affordability and realise their housing dreams.
“This year, parents or grandparents, family or friends are set to lend thousands more to fund nearly one in five house purchases.
“The Bank of Mum and Dad is a symptom of Britain’s broken housing market and it goes far beyond millennials relying on their parents as more older borrowers look to family and friends for financial support.
“Our reliance on ‘BoMaD’ funding is an increasingly skewed facet of the UK housing market. It’s dependency, not generosity. It is socially divisive and it’s creating a ‘locked out’ generation of first-time buyers who aren’t lucky enough to benefit from this kind help. It’s also almost certainly eroding older people’s finances when they need it to fund care and retirement – parents, grandparents, even friends are digging ever-deeper into their savings and pensions.”
Are millennials becoming too dependent on the help of their older relatives for financial support? Should the mortgage market be doing more to help the younger generation to avoid BOMAD increasing their presence in the lending market?
