Bank of Mum and Dad becomes one of UK's top ten lenders
New research has revealed that the so-called 'Bank of Mum and Dad' will help to fund a quarter of all mortgage transactions in the UK in 2016.
Parents are set to lend their children £5bn to help them buy a home in 2016, funding £77bn of property purchases. If the lending power of parents were combined they would be one of the top ten mortgage providers in the UK.
Relying on help from parents could be 'unsustainable'
Research from Legal and General has revealed that parents will provide the deposits for more than 300,000 mortgages in the UK this year. The average contribution is £17,500 - 7% of the asking price - and L&G believe that around £77bn of homes will be purchased with parental support.
The report blames a weak growth in wages against soaring house prices for the huge reliance on parental support. The latest figures show that the average annual pay rise is currently around 2% compared to annual house price increases of over 7%.
The report also warned that first-time buyers relying on help from their parents could be unsustainable as the 'Bank of Mum and Dad' gives away more than they can afford.
Housing market poses a risk to pensions
A separate study by the National Institute for Economic and Social Research (NIESR) has also identified risks to pensions and savings from the housing market. The FT reported that rising house prices were diverting investment in retirement, with the average purchaser using a mortgage receiving about 15% less pension income than those who do not.
Parental contributions already make up more than 50% of the wealth of the average household in London when property was excluded.
It described that scenario as a “tipping point” - adding: "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".
Nigel Wilson, the chief executive of Legal and General, said: "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".
He added: "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."