Home buying or PRS – The Bank of Mum and Dad
There remains a willingness amongst some young adults to enter the traditional home buying property market. As a consequence parents acting as the bank of mum and dad (BOMAD) in the UK are spending £6.5bn a year to help their children get a foot on the property ladder, up from £5bn last year. This makes BOMAD the equivalent of the 9th biggest mortgage lender in the country and borrowing from family and friends to help fund deposits will help younger homebuyers complete on some 300,000 transactions this year.
The average age of a first-time buyer in the UK is now 30, rising to 34 in London and the average transaction involves a contribution of £17,500, with three quarters of BOMAD purchases being funded by parents. Indeed Over-55s are sitting on £1.5 trillion worth of property equity.
A separate survey carried out by YouGov for JLL indicates handouts from parents to their children to buy property are set to be worth £103bn in London and the southeast. It claims that up to half of home purchases in the region will be part-funded by parents in future. JLL said the scale of the handouts could entrench social inequality by keeping house prices high, despite static wages and rising living costs.
Neil Shearing, Legal Services Consultant of SLC Solicitors, says “there is a case to say that the Bank of Mum and Dad is actually propping up the UK home buying property market for the time being as had parents not invested in their desire to see their offspring leave the family home the market may have been infinitely more stagnated and led to a decline in transactional incomes for managing and estate agents.
But what alternatives do those other young people have who cannot draw from the Bank of Mum and Dad? The answer lies within the private rented sector. The proportion of people living in private rented homes has doubled since 2000 and is set to rapidly increase over the foreseeable future.
Neil says “Unless the current economic uncertainty surrounding, amongst other things, Brexit and the huge levels of personal debt causes another dip into recession then transactional incomes for managing and lettings agents should remain relatively buoyant -thanks to mum and Dad especially. That said as a parent myself I am not sure how healthy it is if children look on their parents as huge piggy banks while parents suffer by having to play the role of providers forever. The PRS gives flexibility and options for young people and a greater cash flow for parents to enjoy their later years”.