The continuing rise of house prices in the UK is making things increasingly difficult for young people to afford a mortgage deposit. Houses prices are consistently outpacing average UK wage increases and it is becoming more and more typical for the parents of first time buyers to help their children by giving their budget a boost.
Although the new Help to Buy ISAs are very popular, new research from Legal & General shows that it is actually the parents that are propping up mortgage deposits the most when it comes to buying a home.
According to the recent research from the financial services firm, the parents of buyers (also known to many as ‘The Bank of Mum and Dad’) will contribute towards 25% of all UK mortgage transactions in 2016.
The total sum of these contributions from parents could reach a massive £5 billion, with the average contribution being approximately 7% (£17,500) of the average purchase price.
It is predicted that parents in the UK will help finance the purchase of nearly £80 billion worth of property through just over 300,000 mortgages in total.
Chief Executive of Legal & General Nigel Wilson, worries that this method is unsustainable long term and could reach a "tipping point". Wilson stated "Relying so heavily on the Bank of Mum and Dad, however, risks increasing inequality as many young people today are not lucky enough to be able to access parental support when buying a home, or can’t afford to buy even with parental help."
Wilson also suggested that the heart of the housing problem is supply, and that we only restore balance to the market by increasing the amount of available housing. Wilson says: "We need to fix the housing market by revolutionising the supply side - if we build more houses, demand can be met at a sensible level and prices will stabilise relative to wages."
Wilson also states that the continuation of Bank of Mum and Dad boosts could not only create inequality in the housing market, but also lead to wider issues for the parents themselves: "We have a supply-side problem in housing – we are simply not building enough houses. We need to build more, especially as the Bank of Mum and Dad could soon start to experience a funding crisis of its own."
