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Bank of Mum and Dad: coming to a high street near you

With property prices being so out of sync with wages, first time buyer activity would be dead if it wasn’t for the unsung heroes of the UK property market. Parents. Whilst the rest of Europe has always been comparatively lukewarm about property ownership, the UK continues to be obsessed; firmly believe that getting on the property ladder is key once a young person is earning.

But with the average price of a decent one bedroom flat in South East London being north of £350,000 (add £75,000 for a further bedroom), your average deposit on a flat together with incidentals such as stamp duty, solicitors and mortgage arrangement fees is going to be near enough £90,000, which most young people don’t have. Bring in Bank of Mum and Dad.

Lending from parents to help their children get on the UK property ladder will amount to £5bn in 2016, according to data from Legal & General. This means that so-called Bank of Mum and Dad will help to finance 25% of all UK mortgage transactions this year – at an average amount of £17,500. This figure is much higher in London. If this lending prowess was combined into a formal business, Bank of Mum and Dad would be a top 10 UK mortgage lender, adds L&G.

In the old days, young people had to wait for their parents or grandparents to die before receiving their inheritance. But that didn’t matter so much. Back when a 1 bedroom flat was £150,000, you only needed a deposit of 5% to get a mortgage. If you had savings of £10,000, you were well on your way.

“With property prices and the corresponding deposit required being so much higher these days, there is far more pressure on parents to make financial gifts early, to help get their children on the property ladder,” says Sally.

Her daughter Penny is 32 and has been in a steady relationship with a Daniel for 3 years. Whilst renting, they had been interested in purchasing a property in Brockley, South London, but the prices had been well out of their reach. When Daniel’s grandmother died unexpectedly and left him £30,000, his immediate priority was to use the money as a deposit on a property. With personal savings of £20,000, he was ready come up with his side of the bargain on a deposit for their first home. All he needed now was for Penny to pull her weight!

“This put immense pressure on us as parents to find the money for Penny’s side of the deposit,” says Sally. “We had earmarked £30,000 for a loft conversion but we sacrificed our plans and gave the money to Penny. Under normal circumstances, we would have expected Penny to repay this debt, but because Daniel simply inherited his money, we didn’t feel it was fair to ask her to pay us back. We feel a little robbed, to be honest!”

This trend seems set to gather pace in the next few years and shows no sign of abating. The corresponding pressure on parents is real and profound. Bank of Mum and Dad: it’s here to stay!

Article by Akwasi Duodu

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