'Bank of mum and dad’ puts brakes on UK mortgage lending

But parents will still help 316,600 grown-up children buy property in 2018, including almost one in 10 of those aged over 55.

There are a number of vehicles other than loans through which parents can empower their children to buy (Reuters)

One in four UK housing transactions will rely on a parental cash injection this year, helping to secure property worth a whopping £82bn.

The so-called ‘bank of mum and dad’ will lend or even give £5.7bn this year alone, financial services group L&G predicts, with 316,600 getting help from family – up by almost 19,000 people since 2017.

Almost three in every five homebuyers aged under 35 receive financial help from family and friends. But one in five 45- to 55-year-olds also get help from parents, as do 8 per cent of the over-55s. The figures point to an increasingly unpredictable housing market.

“The fact that in 2018, one in four housing transactions in the UK will be dependent on the bank of mum and dad, while hard-pressed parents are finding it more difficult to provide the funds to help their family with deposits, will further exacerbate the UK’s housing crisis,” said Nigel Wilson, group chief executive at Legal & General.

But the amounts being handed over are falling. The average contribution this year comes in at £18,000, down £4,000 or 17 per cent in the past 12 months. Total lending is down from a high of £6.5bn in 2017.

Buyers in the Northeast have seen the average family contribution plummet by £12,200 in the past 12 months to £12,000 while those in the Southwest will receive a typical £19,300 instead of £30,000.

In London, despite the stumbling property market, the average family support now comes in at £30,600 – up from £29,400 in 2017. In the capital, more than 40 per cent of buyers had financial help from family to invest in property whose value is now growing by only 0.8 per cent a year, according to Hometrack UK.

Sixteen of the 47 local authorities in the capital are now registering house prices drops of up to 2.8 per cent a year.

Out of thin air

With huge sums of cash still being handed over, almost three quarters of parents have plundered life savings to stump up the cash while a third downsized or released equity in their homes. Another third accessed pensions cash – either cashing in lump sums, through income drawdown or annual annuities, 7 per cent remortgaged and 6 per cent took out a loan themselves.

Only 23 per cent of parents took any kind of advice before lending the money, and most of those only did online research.

The report found that “while only 10 per cent say giving the money left them feeling less secure about their own financial future, many had to make sacrifices.

“Nearly 1 in 5 say that they’ve had to accept a lower standard of living, such as cutting back on a holiday or postponing a car purchase as a result of lending the money.”

Mind the parental gap

“Hundreds of thousands of parents are still putting their hands in their pockets to help their offspring onto the property ladder – it’s just that those pockets aren’t as deep as they once were,” says Sarah Coles, personal finance analyst for Hargreaves Lansdown.

“If homebuyers are going to close this parental gap, there are some strategies that can make all the difference. There are a couple of ways to get free money from the government – including the Lifetime ISA (LISA), along with two approaches that can reduce the size of the deposit you need, and techniques that enable parents to help out even if they can’t afford to give any cash away.”

Lifetime ISA

Buyers aged 18 to 39 can put up to £4,000 a year into a LISA, and the government will add a 25 per cent bonus on contributions each month: that’s up to £1,000 of free money each year. If you can put away the full amount each year, in less than four years you can build up a 10 per cent deposit on the average first time buyer property – slicing a year off the total time it takes to save. To qualify you will need to hold the LISA for at least a year, and buy a property worth no more than £450,000.

Help to Buy ISA

If you don’t qualify for the LISA (on age grounds or because you are buying within a year) you can get a Help to Buy ISA instead. You can save £1,200 in the first month, £200 thereafter, and get a 25 per cent bonus on the first £12,000 you put away. The HTB ISA can be used to buy a property worth up to £250,000 (£450,000 in London).

Shared ownership

This enables you to buy a share in a property (as little as 25 per cent of it), pay a mortgage on that share, and pay rent to a housing association on the rest. Later on, you can buy a larger share of the property (known as staircasing) at the market rate at the time. To qualify, your household income must be less than £80,000 or £90,000 in London.

Help to Buy Loans

This is a government scheme available to buyers moving into newbuild property. The government will lend you up to 20 per cent of the cost of the property, so you only need a deposit of 5 per cent and a mortgage for 75 per cent of the cost.

The government loan is free for the first five years. After that you'll pay a loan fee which rises each year. You will also have to repay the government loan after 25 years or whenever you sell the property – whichever is sooner.

Now that the scheme has been around for five years, if the price of the property has risen sufficiently, some mortgage companies enable homeowners to wrap the government loan into a remortgage and repay the government before any fees are due.

Parental help in other ways

Parents who can’t afford to give the cash to their children could consider buying with them and owning part of the property. Their children could then pay rent and buy the rest of the property from them as their financial situation improves.

Mortgage companies also offer a variety of ways for parents to help, from guarantor mortgages (which usually enable buyers to get larger mortgages if their parents guarantee to cover repayments) to family offset mortgages (where parents put their savings into an account linked to their child’s mortgage).