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Bank of Mum and Dad will continue to play vital role for first-time buyers – L&G

by: Steven Ellis, chief executive of Legal & General Home Finance
  • 07/12/2018
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Bank of Mum and Dad will continue to play vital role for first-time buyers – L&G
The Bank of Mum and Dad is a term advisers have become very familiar with in and we are taking a keen interest in it through our ongoing research into the sector.

Family support now accounts for one out of every four UK housing market transactions. 


It has become a fundamental part of the way our housing market functions and those hopeful first-time buyers who do not have help can find it significantly harder to get on the ladder. 


Demand-side government schemes such as Help to Buy have tried to make mortgages more accessible for first-time buyers, but a lack of appropriate, affordable housing has meant transactions have hit some of their lowest levels in recent years.


Many of those transactions which are occurring are being underpinned by support from family.


But if parents and grandparents are helping so many of these buyers to get onto the property ladder – at what cost is that support being provided?

Feeling the pinch


It can be tough for many families, as our research found nearly one in five over-55s suffering financially as a direct result of helping family members onto the housing ladder.


As a result a fifth of parents and grandparents aged over 55 are accepting a lower standard of living in order to help their loved ones buy a home.


Thousands have either cashed in their pension pots or have used funding from annuities to help a family member buy a property.


Worryingly, one in 10 say they feel less financially secure as a result of tapping their retirement funds.

Is building more homes the answer?


Increasing the supply of housing would definitely help matters, since the gap between supply and demand is still driving house prices upwards, particularly in property hotspots.

However, 30 years of underinvestment means the UK is suffering from poor productivity, low real wage growth and several market failures – affordable housing being one of them.


With 1.3 million households currently on a waiting list, we will struggle to rapidly address the supply side of the housing crisis.


In any case, building more houses won’t feed through quickly enough to ease the pressure on family support in the immediate future.

So, where do we go from here?

Family is a vital funding source for the market and it will to continue to play a pivotal role in assisting first-time buyers on to and up the property ladder.


W
hat then are the best options for homeowning parents looking to support their family by using their pool of assets, including property wealth?


Retirement lending is an option to consider.


Our research found that nearly 14% of the deposits provided by a family member were partly or wholly supported by equity release – nearly double the number who used annuities and over twice as many as those relying on taking out a loan.


Using housing equity to support children or grandchildren can be an appealing solution for many older homeowners, with this wealth acting as an anchor to support multiple properties and families.

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