‘Young homebuyers choose ‘Bank of Mum & Dad”
June 19, 2007 at 10:40 am
With first time buyers needing ever increasing sums of money to take the first step onto the property ladder, the Council of Mortgage Lenders (CML) has reported that 40 per cent of young home buyers turn to the ‘Bank of Mum & Dad’ for monetary aid, in addition to more commercial financial resources.
The CML found in a new survey that 23 per cent of homeowners had received financial help from their parents, while the number increased to 39 per cent for homeowners aged under 30, and 40 per cent for those who have entered the market since 2004.
According to the newest estimates, parental loans have amounted to more than £2.1 billion over the last decade, with the average loan from parents, as well as friends, coming to £12,188.
With banks and building societies continuing to increase interest rates on loans and mortgages, it comes as no surprise that a growing number of young adults have to turn to their parents for financial support.
The CML survey found that 31 per cent of potential first-time buyers anticipated help from the Bank of Mum & Dad, while 35 per cent expected that they would not be able to buy their first property without it. More than three quarters (76 per cent) of those under 25 said that they would not have been able to buy without help.
Bank of Mum & Dad “getting real”
Although parents and relatives have always provided some degree of financial help, the practice has become much more common lately. However, the money that parents give to their children does not come without strings, and much like a real bank, a growing number of parents are expecting to be paid back.
In fact, research from Scottish Widows Bank suggests that the number of parents expecting repayment has doubled over the last ten years, from one in ten (9 per cent) in 1996, to one in five (18 per cent) in 2006. Over the same period, the number of parents giving away free money has also fallen from 38 per cent to 32 per cent.
The Bank of Mum & Dad does still offer appealing terms to its favoured customers when repayment is required. Of those graduates borrowing money after leaving university, one in six have set themselves no deadline to repay their parents, while one in eight (13 per cent) said that they would not repay their debt until the sale of their first home.
“While it’s good to see that people are getting help from their loved ones, some of these loans might be leaving the Bank of Mum & Dad empty,” commented Richard Clark, head of product development and marketing at Scottish Widows Bank. “Lenders like ourselves offer alternative solutions for graduate first time buyers – and their parents – by offering 100 per cent mortgages and options that allow parents to act as a guarantor.”
But with bank rates continuing to rise, and further base rate hikes expected in the near future, it is likely that young adults will continue to take out loans with the Bank of Mum & Dad, particularly while its deals remain so much more attractive than any of the alternatives.
