Forget the banks, moms and dads are now $7B lenders

Lending by British moms and dads to help their children get on the property ladder has grown so much that parents – and crucially, their money – are expected to be involved in 25 percent of all U.K. property purchases in 2016.

Known popularly as the "Bank of Mum and Dad" in the U.K., parents are used to having to pay for their children from the moment of birth up to the age of 18 but those who can afford often help their offspring get their first home.

Research by financial services group Legal and General (L&G) and economics consultancy Cebr published on Tuesday that "the Bank of Mum and Dad" will lend over £5 billion ($7 billion) to their children in 2016, providing deposits for over 300,000 mortgages and purchasing homes worth £77 billion this year.

L&G said that moms and dads lend so much that "the Bank of Mum and Dad" is now the equivalent of a top 10 mortgage lender in the U.K. and will be involved in 25 percent of all property transactions that take place in the U.K. market this year.

An estate agent sold sign is displayed outside a property on June 3, 2014 in London, England.
Oli Scarff/Getty Images
An estate agent sold sign is displayed outside a property on June 3, 2014 in London, England.

Lending money for a deposit on a first home has become almost standard practice in middle-class Britain, a country which has a special attachment towards home ownership but where prices can differ massively depending on location.

The average house price in the U.K. is £202,436 (around $297,000) as of April 2016, according to the latest house price index from mortgage lender Nationwide, up almost 5 percent from a year ago. Property in the South of England and close to the capital tends to be far more expensive than the North.

In London, however, the average price of property in the capital is £534,785, according to the latest data from the Land Registry in March.

Typically, at least a 10 percent deposit is needed for any property purchase and lenders have become far more stricter in terms of lending criteria. The Bank of Mum and Dad's average financial contribution is £17,500 or 7 percent of the average purchase price. In addition, 57 percent of "Bank of Mum and Dad" contributions are gifts, 18 percent are loans with no interest and 5 percent are loans with interest.

Nigel Wilson, chief executive of Legal & General said that young people are living in a tougher property environment and that not enough homes were being built – a move that could help lower prices so that more young people could access the market without mom and dad.

"The Bank of Mum and Dad plays an increasingly vital role in helping young people take their early steps on the housing ladder," he said.

"But the generosity being displayed by U.K. families doesn't make up for intergenerational unfairness – younger people today don't have the advantages the baby- boomers had, including cheap housing that delivered windfall gains. (But) 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."

"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."

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