Every parent wants to see their children succeed and fly the coop at some point, and for young people, owning a home is a dream, a major step into adulthood and financial independence. However, while previous generations were able to easily secure mortgages from banks, now children are increasingly looking to the “Bank of Mum and Dad” (Bomad) to help them make that initial deposit. So much money has now passed from parents to children that the Bomad is now the ninth biggest lender in the UK?
There are many reasons why Bomad is necessary
When financial bodies ask why children are borrowing from their parents, they need to realise that there are several factors at play. Firstly, hundreds of thousands of young people are not entering full time work until at least 21 years old after a lifetime of education, ending with university. This means that savings for a house deposit are minimal if not non-existent. Secondly, demand is outstripping supply, so prices will rise based on the amount of potential home owners and the number of available homes. Young adults rely on gifts or loans from friends and family because they struggle to find ways of saving enough money in their 20s to early 30s.
House prices keep rising
The Bomad lent £6.5bn this year, helping to fund 26% of all UK property transactions. 79% of this money is going to first time buyers under 35 years old. What hasn’t helped is the growth in house prices, which grew to a figure of 7.3% in 2016, and lowered to 5.8% this year. Unfortunately, a rise is still a rise, which is outstripping interest rates for savings accounts and also comes at a time when the UK is experiencing a hefty wage slump. So not only do young adults have less time in work compared to their parents, but they aren’t paid as well and therefore have fewer chances to save for a deposit.
More parents own their own homes
The amount of parents of young adults coming into retiring age who own their own homes outright is at a first-time high against borrowers, with 7.4million households owner-occupied and the mortgage completely paid off. These parents then have the cash to be able to lend to their children as they no longer pay a mortgage. News outlets have noted that parents offer fixed sums, rarely dependent on the location and ignore the regional variations in property prices. Because parents own their own homes, they’re more likely to tolerate children living there throughout their 20s to save for a first house.
Need help in securing a lender? Grange Mortgages offer expert advice from a team with years of experience dealing with mortgages, and have a dedicated administration unit that will be with you right from that first step, up to the day you grab the keys and move in. Call us today on 01604 877999 to see how we can help you.