In the UK, one in four housing transactions will rely on the assistance of their parents to raise the capital. The financial services group L&G predicts that the bank of mum and dad will lend (or in some cases give) £5.7 billion this year alone.
The Bank of Mum and Dad is Driving Mortgage Transactions
Approximately three in five homebuyers aged under 35 receive financial help from their family and friends. Furthermore, one in five people aged 45 to 55 will also receive help from their parents, along with another 8% of over 55s. The increasing amount of assistance required from the bank of mum and dad indicates the unpredictable nature of the housing market.
Parents Make Sacrifices to Help Their Children
Not all parents are able to help their children financially. As a result, many are resorting to making personal sacrifices. Almost three quarters of parents have used their life savings, whilst a third have downsized or released equity in their homes. Another third of parents have accessed their pensions, whilst 7% have remortgaged their homes and 6% have taken out a loan themselves.
1 in 5 parents have gone as far as accepting a lower standard of living. This includes cutting back on a holiday or postponing a car purchase as a consequence of helping their children financially.
What is worrying is that only 23% of parents sought financial advice before lending the money to their children. A majority of parents mostly relied on internet research for guidance.
Although the bank of mum and dad is willing to help, it is much harder to do so in the current financial climate. Despite the fact that house prices continue to rise, and wages aren’t effectively supporting this, hundreds of thousands of parents are still offering to give their own money to help their children get on the property ladder.
