Housing and the bank of Mum and Dad

family life

Housing is notoriously expensive in the UK and for one very simple reason: there just isn’t enough to go round. Efforts to build new homes have been sluggish and patchy for decades and the inevitable result has been a relentless climb in prices, thanks to the iron law of supply and demand: great for those already on the proverbial ladder because they have the opportunity to make serious profits if and when they sell – but a big problem for everyone else, especially if they live and work in the high demand areas with the most expensive properties on the market (yes, London, I’m looking at you).

As recently as November last year, the Royal Institute of Chartered Surveyors (Rics) talked openly of a crisis in the UK housing market – and let’s face it, if anyone would know, it’s them.

Rics chief economist Simon Rubinsohn explained:

“The dire shortage of available housing across the UK is continuing to push prices upwards, regardless of the uncertainty linked to the ongoing discussions surrounding Brexit.”

Average houses prices in the most expensive areas mean that home ownership is simply out of reach for anyone not on a sky-high salary. Those with more average pay packets are forced to stay in rented homes for far longer than previous generations or obliged to undertake lengthy, expensive commutes every day. Young people just starting out in the world and building their careers are especially vulnerable to such disadvantages and naturally their parents worry about their futures.

And many parents, it seems, are doing more than just worry according to new research, jointly conducted by insurance firm Legal & General and economoics consultancy Cebr. Mothers and fathers across the country lent their struggling kids no less than £5 billion to help them with housing last year and this is expected to rise to an even more substantial £6.5 billion in 2017, about as much as Britain’s ninth biggest mortgage lender, the Yorkshire Building Society. That will mean the so-called Bank of Mum and Dad underwriting no less than a quarter of all property transactions, including nearly 300,000 mortgages. The average amount lent was around £17,000– and this too is expected to rise over 2017, to an estimated average of £21,600.

Surprisingly perhaps, average parental contributions are actually highest in the South West (£30,000), closely (and predictably) followed by London parents, with an average of £29,400.

This all paints a grim picture for the parents and disenfranchised millennials among us and it is one that is unlikely to change any time soon. Whichever government we end up with on 9 June might embark on a huge affordable housing programme – but then again, it probably won’t. Too much effort required. We might get some more tinkering-at-the-edges financial assistance schemes like the ‘help to buy’ programme. Then again we might not. It’s much easier for governments to ignore huge social problems and hope they just go away: especially when they are busy tying themselves in knots over the complexities of Brexit.

Meanwhile, my advice to any parents who are in a position to help their children take their first steps onto the housing ladder would be very clear: seek legal advice and make sure your interests are protected – as well those of your children of course. Consider what might go wrong. Is your son or daughter married, planning to marry or cohabiting? If so, what would happen if the relationship breaks down and the couple split up or divorce? There’s a lot to be said for security and certainty when such large sums are at stake. There are ways in which legal and beneficial interests in property can be protected through the use of cohabitation, prenuptial or postnuptial agreements [and you’ll find plenty of information about these topics elsewhere on the blog]. If the money is advanced as a loan consider whether a formal loan agreement needs to be created. Such planning could save a lot of difficulty in the future.

Image by Lydia via Flickr under a Creative Commons licence

Julian Hawkhead

Julian Hawkhead is Stowe Family Law’s Senior Partner and is based in our Leeds office.

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4 comments

Paul - May 5, 2017 at 8:50am

I’m 38. I have no realistic way of owning a home and never have had. Because I zigged when I should have zagged at school. Made the most important choice of my life when I was 18. Now im stuck in the rental trap. I hand over 80% of what I earn to a landlord. An there is no realistic prospect of putting together a 10-20k deposit. I have no realistic goals. My parents cannot give me a deposit.
I disagree there are not enough houses. There are far too many houses stood empty on the housing market waiting for people to pay an unrealistic artificially inflated price.
We need a housing solution NOT a housing market. There is something seriously wrong if only Roman Abromabvich or Russian property mongols can buy property in London. I think rent prices are far too steep. Been a Landlord is the last money for nothing scheme in the UK. Landlords should be more heavily regulated. There are too many who get away renting bad propertys or in dismal condition. Unless rent levels are controlled then people have no realistic way to save a deposit. If you don’t want to do your property up so its fit to live in. Thats fine but don’t charge some poor cxxt £550 a month to live in it. Thats shocking. At the moment minimum rent levels are ‘fixed’ by estate agents. Its a price fixing issue. The government need to step in and start fixing the price. Its the only way to address this issue. You can’t expect estate agents to self regulate. This issue is raised every month in parliment but parliment will take NO ACTION because 70% of our MP’s are millionaires. Lots of them have property portfollios and are multiple property owners. Lots of them are Landlords and they absolutley will not take a bullet for the sake of all the families in Britain with no home. Everyone knows what needs to be done. But they won’t do it !

Andrew - May 6, 2017 at 5:23pm

Paul: We tried regulating landlords and limiting rents before: it was called the Rent Acts and it was a disaster. Please don’t suggest going down that road again.

Andrew - May 5, 2017 at 1:05pm

So what is to be done?
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Break the power of NIMBY, NODAM, BANANA and SOBBY: centralise the planning system.
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Possible some sort of anti-BTL covenant on new build although I cannot see how or by whom it would be enforced. Not LAs who have no interest in making people homeless to benefit homeowning neighbours.
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And some method must be devised to allow the Bank of Mum and Dad to give to their children – inter vivid or by will – on terms that if there is a divorce the gift will be left out of the pot and kept by the donee – even if that leaves the donee much better off than the ex. People want to give to their own children – not to somebody else’s.

Andrew - May 5, 2017 at 4:28pm

Inter vivid DAMN AUTOCORRECT!

Inter vivos of course

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