With rising house prices outpacing income an increasing number of young people will borrow from parents and family in order to get onto the property ladder.
The 10th largest mortgage lender
The combined amount which parents and grandparents will be prepared to gift or loan their children to help them buy their first home is estimated to be £5bn. This puts them alongside the 10th largest mortgage lender in the country, Clydesdale Bank, which lent the same amount in 2014.
Research from Legal and General estimates the “Bank of Mum and Dad” will be involved in approximately one in four UK mortgage transactions this year, showing the extent of how borrowing from family members is supporting the housing market. The risks of borrowing from Mum and Dad However, as well as the obvious benefits, Legal and General suggests people from less advantageous backgrounds will be increasingly squeezed out, effectively widening inequality in the housing market.
They also caution that the “Bank of Mum and Dad” will, at some stage in the future (they estimate 2035), come into a funding crisis, caused by unexpected care costs for parents and grandparents living longer. The problem is exacerbated for families in London who have been known to contribute more than half their net worth on their children’s house purchase.
Other investment options for your children
There are more ways to help your children financially than contributing to their first home, but whatever approach you take it’s important to start early. By saving for your children from an early age (even perhaps before they are born) you can help put them in a better financial situation for their adulthood.
If you would like advice on choosing the right savings and investment options for you and your children, please get in touch.