Bank of Mum and Dad becomes UK’s ninth biggest lender

Posted 12 May 2017 by Nick Parkhouse

Parents predicted to lend their homebuying children £6.5bn this year, taking the Bank of Mum & Dad into the top ten lenders...

New research has found that finance from parents will make the so-called Bank of Mum and Dad the ninth biggest lender in the UK in 2017.

Parents will finance 26% of all mortgages in the UK this year, providing deposits for 298,000 mortgages and buying homes worth £75bn, according to the research from Legal & General and financial services group Cebr.

Parents will be involved in a quarter of all UK property transactions in 2017

Research from Legal & General and Cebr has revealed that finance from parents has made the Bank of Mum and Dad the UK’s ninth biggest mortgage lender, just ahead of Clydesdale Bank in the mortgage market. Loans from parents are only narrowly less than the total lending one of the UK’s best-known lenders, the Yorkshire Building Society.

Parents will lend £6.5bn this year, according to the insurer, and will be involved in 26% of all UK property transactions. This is up from the £5bn of lending estimated in L&G's equivalent survey a year ago. The study found that the Bank of Mum and Dad’s average financial contribution has jumped by 23% from an average of £17,500 in 2016 to £21,600 this year. Almost 80% of their funding goes to people under the age of 30.

Nigel Wilson, CEO of Legal & General, says that statistics are showing that the problem is “getting worse, not better”. He adds: “The Bank of Mum and Dad (BOMAD) continues to grow in importance in helping young people take their early steps onto the housing ladder. The intergenerational inequality that creates the demand for BOMAD funding continues to widen – younger people today don’t have the same opportunities that the baby-boomers had, including affordable housing, defined benefit pensions and free university education.

“Parents want to help their kids get on in life, and the Bank of Mum and Dad is a testament to their generosity, but it is also a symptom of our broken housing market.”

The study found that parents in the South West of England are the most generous, providing an average of £30,000 support per transaction, compared to £29,400 for parents living in London.

Wilson adds: “The UK is experiencing a supply-side crisis in housing – we are simply not building enough houses. We need to build more homes for the young, old and families alike – more quickly and cost effectively.”

Parents urged to take proper steps when gifting money

With parents helping in one in four housing transactions in 2017, a mortgage expert has warned parents and borrowers to make sure they take steps to deal with any ‘gift’ properly.

Industry expert Mark Harris told the BBC: “Money from parents must really be a gift rather than a loan as far as mortgage lenders are concerned, so that it doesn't impact the borrower's affordability.

"Getting the correct legal documentation in place is also crucial, particularly if one set of parents is providing support to a young couple. Parents will want to protect their deposit gift if the couple split up so that it is returned to the parents and not split between the two parties.”


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