A recent report published by Legal & General showed that the so-called ‘Bank of Mum and Dad (BOMAD)’ will finance 26 per cent of all mortgages in the UK in 2017, placing it in the Top 10 of the UK’s top lenders. With mortgage approvals reportedly having dipped for the second month in a row, is the Bank of Mum and Dad the cornerstone of the UK property market or is it detrimental to people wanting to get onto the property market?
Recent Bank of England figures show that a total of 66,837 mortgages were approved for house purchases in March, down 1.6% on the previous month. The figures also indicate that the number of loans approved for people remortgaging fell in this period.
Against this backdrop, the Legal & General report indicates that parents will lend £6.7bn this year, up from £5bn in 2016, providing deposits for over 298,000 mortgages and purchasing homes worth £75bn. This means BOMAD is behind only nine mainstream lenders in terms of its contribution to the residential property lending landscape in the UK.
The average contribution from the Bank of Mum and Dad has risen by 23 per cent from an average of £17,500 in 2016 to £21,600 in 2017 with most of this money going to property buyers under the age of 30.
Some commentators have suggested that the increasing reliance on the Bank of Mum and Dad will have a negative effect on the UK’s property market in the longer term.
However, Robert Carroll, Founder of leading fixed fee solicitor estate agency, MOV8 Real Estate, Estate Agents and Solicitors, doesn’t believe that these statistics indicate major issues in the housing market. Commenting on the figures, Carroll stated:
“Over the years, contributions from parents have been a staple of the housing market. A generation of homeowners have seen the value of the houses that they live in, and that their children grew up in, increase by up to 300% through the late 1990s and early 2000s.
“By contrast, their children have seen the value of any properties that they owned drop significantly during the credit crunch and then stagnate for a few years afterwards whilst average wages haven’t increased significantly in that time.
“For children lucky enough to have parents who are in a position to help them with their property purchase, a loan from the Bank of Mum and Dad is often their only option to secure a large-enough deposit to help them to get the best possible mortgage rate.
“For homebuyers who aren’t lucky enough to be able to obtain a loan or gift from this significant source of property finance, mortgage availability remains very healthy when compared with the past decade. Low interest rates, the advent of affordability criteria rather than fixed multiples of income as the basis of loan sizes, plus the increased availability of 90% Loan-to-Value mortgages in the past few years means that homebuyers today who have a smaller deposit are still in a great position to secure an affordable mortgage and get onto, or move up, the housing ladder.”
If you would like advice about the buying process in Scotland or if you would like to make an Offer on a property that you have found, please call 0131 297 7999.