Can The Bank of Mum and Dad Carry on?

by Mark Johnston

Can The Bank of Mum and Dad Carry on?

Owing a house is still hugely important to millions, but it is more difficult to achieve than it used to be!

There is no doubt that in economic terms, life is tougher for the next generation.

In recent times family help has played an increasingly vital role in helping many first time buyers raise the large deposits now needed to get a mortgage.

Research from the HSBC found that first time buyer sales last year, which were worth around £5.3 billion, would have not happened without the help of the bank of mum and dad.

Since 2008, a staggering 228,000 people have had turn to their parents for the lump sum they need to buy their first home.

The Council of Mortgage Lenders (CML) figures showed that 66 per cent of first time buyers in recent years have had parental assistance.

The Equity Release Council’s (ERC) latest research has also revealed that over the last 5 years alone parents in the UK have injected around £23 million in to the housing market each month since 2008.

Due to these figures there is now a growing number of financial packages which have been designed with the bank of mum and dad in mind.

However, research from Wesleyan Assurance, who provides specialist financial advice and products to the likes of doctors, dentists, teachers and lawyers, revealed that the bank of mum and dad is now leaving many parents with a potential financial ‘black hole’ as they continue to prioritise their children’s financial needs in adulthood over their own.

Data has shown that there is a now generation who are supporting their children for much longer than they expected to.

The bottom line is that many parents who are handing down money to the younger generation may well find themselves in poverty when they reach old age.

Professor Karen Pine, co-author of financial advice book Sheconomics, thinks that “it is a growing and very worrying trend, a time bomb waiting to explode”.

Therefore it is no wonder that more than half of all parents who offer financial help to their children to buy their first home expect to be paid back and nearly third quarters of them also want interest, ranging from 2.1 per cent to 2.5 per cent on average.

These percentages are close to the current rate of inflation.

Almost a fifth of parents had even asked for part ownership of the property so they could collect their money when the property was eventually sold on.

Peter Dockar, head of mortgages at HSBC, suggested that it was probably best for families to agree on terms at the outset for waht they expect to happen after lending money to avoid any ‘unnecessary strain’ in the future.

A recent study also found that just 31 per cent of relatives actually offered cash as an outright ‘gift’. The typical size of a parental gift or loan  varied from around £19,000 up to £42,000 on average.



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