New data shows the Bank of Mum and Dad is the UK’s 9th biggest mortgage lender

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The Bank of Mum and Dad (or Bomad) has become Britain’s unofficial ninth biggest “mortgage lender”, as the amount of loans and gifts from parents to children looking to get on the property ladder is expected to increase 30% this year to £6.5 billion – thanks largely to the continued increase of house prices.

According to new research by Legal & General, the amount of borrowing from Bomad – which is now thought to help fund over 25% of all property purchases in the UK – puts it level with Yorkshire Building Society, which is the ninth-largest residential lender in the country.

For people under the age of 35, the amount seeking financial help from their parents, friends and family to buy a house is currently at 62%, and the amount of property transactions in a year that involve the help of Bomad is just under 300,000.

Legal & General first began looking into the scale of the lending by the Bank of Mum and Dad last year, and found that around £5 billion was lent. That amount has shot up to an expected £6.5 billion this year, as 42% of prospective homeowners expect to get help from their parents to help fund their transaction – up from around 33% last year.

The steady increase in house prices also contribute to the rise in Bomad lending, with average house prices up 7.3% in 2016 according to the Office for National Statistics’ house price index. The average house price in February 2017 was £218,000 – which is £12,000 higher than in February 2016.

Legal & General’s chief executive, Nigel Wilson, said that the increase in lending from the Bank of Mum and Dad is a sign of a broken housing market in which demand has outstripped supply. He said:

“The inter-generational 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.”

Legal & General’s research found that, compared to 20 years ago, prospective houseowners now have to pay a lot more for a new home in terms of their earnings. The report said:

The ONS calculates an average working person could expect to pay 7.6 times their annual earnings when purchasing a home in England and Wales in 2016 — more than double the 3.6 times earnings they would have paid in 1997.

The rise in parental lending comes at a time of record low rates for mortgages, which is being driven by competition between different lenders for new customers and the drop in the Bank of England base rate to 0.25%.

However, although mortgage repayments have never been more affordable, high house prices in many parts of the UK mean first-time buyers without the means to save up a large deposit can struggle to access these low-rate mortgages amid stringent lending rules.

For example, Yorkshire Building Society launched a record low interest rate of just 0.89% as part of a two-year discounted variable rate deal. However, it asks borrowers to pay a deposit of 35% – an amount which would price out most first-time buyers.


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