Is the bank of Mum and Dad ‘feeling the pinch’?
by Alexander Beard, on Jul 23, 2018 4:21:55 AM
L&G are still expecting more than a quarter of home buyers to be getting financial assistance from relatives, with the amount actually seeing a small increase from 25% to 27%. So with close to 317,000 housing transactions expected to take place with parental help this year, how do we account for the £800m drop in lending?
The short answer is that, due to the current position of the economy as a whole, people are feeling the pinch. Although the sheer volume of individual transactions is increasing, the amount lenders are able to provide is going in the opposite direction. In 2017, the average contribution was £21,600, in 2018 that figure is expected to be down 17% at £18,000.
Interestingly, although unsurprisingly, this is a regional phenomenon, with a higher percentage of buyers in London (41%) receiving help from their relatives.The age of the buyer also affects the likelihood of lending, but by no means is it exclusive to younger buyers. Three in five under-35s are expected to receive help, but so are 20% of those between the ages of 45 and 55.
We’re also seeing a growing trend of parents ‘gifting’ their children money that they would otherwise have received years later through inheritance. Not only does this make the money less likely to be liable to inheritance tax, it also means that the buyer can get on the property ladder earlier and thus avoid future increases in house prices. For many in financially comfortable positions, this may well be an avenue worth considering.