Housing and the bank of Mum and Dad
By:4 commentsMay 4, 2017
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
May 4, 2017
Categories: Family Life