With mortgage providers asking for hefty deposits, it’s estimated that parents will lend their kids £6.5bn this year towards property purchases. Is this likely to impact the buy-to-let market?
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Parents now ‘10th biggest mortgage lender’
Despite the ‘mortgage price war’ that’s seen lenders drop their interest rates to record low levels, research shows that young people are increasingly relying on their parents to help them buy a home.
Research from Legal & General and consultancy Cebr shows that the amount given or lent by parents is up by 30 per cent from last year. This means that parents are involved in over a quarter of all UK property transactions, and are effectively the country’s tenth biggest mortgage lender.
Nigel Wilson, CEO of Legal & General, said: “The intergenerational inequality that creates the demand for [parental] funding continues to widen – younger people today don’t have the same opportunities that the baby boomers had, including affordable housing, defined benefit pensions and free university education.
He added that while parents want to help their kids get on in life, and the bank of mum and dad is a testament to their generosity, it is also a “symptom of our broken housing market.”
Could the ‘bank of mum and dad’ fund buy-to-let?
As it stands, interest rates are low and savings accounts are offering weak returns, but mortgages are unusually cheap. As a result, wealthy parents who want to give their children a boost may consider helping them purchase buy-to-let properties to generate additional income.
And some parents are purchasing buy-to-let properties in their children’s university towns, so that their kids can pay low or no rent, with additional rental income coming from their housemates.
Recent initiatives have also seen lenders aiming products at young people and students as potential buy-to-let owners, with Loughborough Building Society launching a ‘buy-for-uni’ product earlier this year.
Products like these often require family support, with the Loughborough Building Society asking for a close relative (parent, stepparent or grandparent) to provide security in the form of cash or equity in a property against any loan worth over 80% of the total property value.
How do you think parental pounds will influence the buy-to-let market? Tell us in the comments.