Bank of mum and dad has growing influence on UK property market

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A report by Legal and General in conjunction with Cebr has highlighted the growing influence that parents have upon the UK property market. The research shows that a phenomenal £5 billion a year is received by offspring from their grandparents and parents. To put this in perspective, this £5 billion worth of finance allows the completion of 300,000 transactions with a gross value of £77 billion.

Also, this makes “the bank of mum and dad” the 10th largest mortgage provider in the UK!

First-time buyers struggling

It is no surprise to learn that first-time buyers are struggling in some parts of the UK due to the ever-growing cost of property. London and the South of England has certainly been hardest hit over the last few years although reduced employment opportunities in the North and Midlands are also impacting affordability. While the £5 billion worth of deposits passed to offspring is certainly well-received by first-time buyers where would the UK market be without this support?

If anything this support is likely to increase in the short to medium term, as wage inflation lags property price inflation, with mum and dad playing a greater role in the overall property market.

Where does the finance come from?

Many parents and grandparents in the UK are sitting on property which has increased enormously in value over the last few decades. There are a variety of options for those looking to raise funds against their property which include a partial sale of the property, remortgaging and for more and more people, downsizing. However, the report also suggests that by 2035 the bank of mum and dad could start to experience cash flow problems which would obviously impact the ability to part finance property acquisitions by their offspring.

We are not for a second suggesting this is a source of finance which has appeared overnight but there is no doubt it is now more significant than ever before. The statistic that using 2014 mortgage figures the “bank of mum and dad” would be the 10th largest lender in the UK says everything?

Is this all a self-fulfilling prophecy?

In many ways we stand on the edge of a self-fulfilling prophecy because finance from the “bank of mum and dad” is helping to push property prices in the UK to levels which will be even more unaffordable for future generations. At some point funding will run dry from the bank of mum and dad but at this moment in time there seems to be no lack of people willing to remortgage part of their home or downsize.

The reality is that there is nothing that the authorities can do other than ensure that future new build numbers are increased dramatically. However, this has been a bone of contention on this website because while the authorities wax lyrical in the press they never seem to deliver on this particular subject. It is fair to say this is not a situation which is unique to the UK with many other countries around the world in similar situations.

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