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Bank of Mum and Dad will drive housing market recovery

The Bank of Mum and Dad will be a key driving force behind the post-coronavirus recovery within the UK housing market, according to new analysis.

Nearly one in four housing transactions – 23 per cent – will be supported by the Bank of Mum and Dad (BoMaD), a four per cent rise since 2019, according to new research by Legal and General.

And 24 per cent of borrowers are now more reliant on financial support from family due to the pandemic.

The amount the BoMaD will lend this year is almost half of the total of 2019 as the housing market effectively locked down during the peak of the pandemic.

Families will lend £3.5bn to loved ones this year, compared to £6.3bn a year earlier, which will fund 85,000 fewer home purchases.

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Of those who have recently bought a house and received support from loved ones, 65 per cent said it would have been “unlikely” without the BoMaD. L&G’s analysis shows the BoMaD will be even more generous than usual this year, lending on average £20,000 towards deposits.

Homebuyers in London are set to receive the most, with the average BoMaD “loan” standing at £25,800.

“While the Bank of Mum and Dad is leaning in to help those lucky enough to have its backing, a generation of hopeful buyers without the support of BoMaD could find themselves locked out of the housing market”, said Nigel Wilson, L&G chief executive.

The government reopened the UK housing market on 13 May after lockdown, and has since announced a stamp duty holiday to reignite the housing market.

While there was a collapse in purchases in the first half of the year, L&G’s analysis shows the BoMaD will be involved in 175,000 housing transactions with an estimated transaction value of £50.3bn.

Wilson added: “Whilst the generosity of the Bank of Mum and Dad is undoubtedly helping hundreds of thousands of loved ones to realise their homeownership goals every year, it remains a symptom of our broken housing market.”

“Our reliance on BoMaD is unfair and unsustainable, and it’s putting retirements at risk as parents and grandparents try to help their kids to have a similar standard of living as they enjoyed.”

By Angharad Carrick

Source: City AM

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The Bank of Mum and Dad lends more to loved ones this year

The Bank of Mum and Dad (BoMaD) has lent more this year, as family and friends spend an average £6,000 more than in 2018 to help loved ones onto the housing ladder.

The report from FTSE100 financial services group Legal & General and Cebr showed that BoMaD lenders will be more generous this year than ever before, as the average contribution increases to £24,100 – more than £6,000 more than the average contribution last year of £18,000.

This rise is double the average house price increase of £3,000 in the year to March 2019.

Nigel Wilson, group chief executive at Legal & General, said: “The Bank of Mum and Dad continues to be the ‘iceberg’ mortgage lender beneath the surface of our housing market – all but invisible yet exerting a massive influence, funding purchases across the country and helping people to defy the economics of affordability and realise their housing dreams.

“This year, parents or grandparents, family or friends are set to lend thousands more to fund nearly one in five house purchases.

“The Bank of Mum and Dad is a symptom of Britain’s broken housing market and it goes far beyond millennials relying on their parents as more older borrowers look to family and friends for financial support.

“Our reliance on ‘BoMaD’ funding is an increasingly skewed facet of the UK housing market. It’s dependency, not generosity.”

However, amidst a reduction in transaction volumes across the UK housing market, BoMaD will fund nearly 20% fewer property purchases than in 2018.

The jump in BoMaD loan sizes has increased total lending for the Bank of Mum and Dad by 10% this year – up to £6.3bn from £5.7bn in 2018. As a result, BoMaD is now the 11th largest mortgage lender in the UK.

Despite the reduction in transaction volumes, BoMaD will still continue to support thousands of buyers across the country in 2019 – involved in more than a quarter of a million (259,400) property purchases.

This is down from 316,600 transactions last year, but it still amounts to nearly one in five (19%) transactions in the UK mortgage market.

In total, BoMaD will help buyers to purchase property worth nearly £70bn this year. In some parts of the UK, there has been an even bigger rise in contributions from family or friends.

In the North West, the average BoMaD ‘loan’ has nearly doubled from £12,900 to more than £24,000, while the South West saw the average contribution rise by over £10,000 to £29,700.

This shift in loan size could be because BoMaD lenders are supporting family and friends to purchase larger properties.

Three-bedroom houses or flats were the most commonly purchased properties in 2019 (44%), and well over a third (38%) have helped family or friends to buy a two-bedroom property. Some 15% of lenders were even helping loved ones to purchase properties with four or more bedrooms.

Millennials (those aged 35 and under) continue to rely on parents the most, with 62% needing financial support from their parents or other family members and friends. However, BoMaD is helping more than just young first-time buyers.

More than a fifth (22%) of people aged 45 to 54 have received financial assistance from BoMaD to purchase their latest property.

Around 7% of over-55s have also received help from family or friends to buy their most recent home. This support for older buyers is expected to double, with 14% of Britain’s over-55s expecting assistance from BoMaD for a future house purchase.

Parents are expected to make the biggest contribution to family members in 2019 and will be responsible for £4.4bn of lending, while grandparents will lend £657m.

Other family members and friends will help more than 51,000 buyers by lending £1.2bn to help loved ones buy a home.

Most BoMaD lenders are using cash savings (53%), but this year unlocking housing wealth through equity release has jumped to become the third largest source of funds (16%).

More than a third (35%) of prospective buyers who are planning to purchase a home in the next five years expect to rely on financial support from their family.

Over three-quarters (77%) of those receiving support in 2019 are home movers, not first-time buyers, compared to less than two-thirds (62%) of home movers in 2018.

Will Hale, chief executive of equity release adviser Key, added: “This report clearly highlights that intergenerational giving is alive and well in the UK today.

Online mortgage broker Trussle has found more than half (58%) of under 35s still live with their parents as they struggle to get onto the property ladder.

Ishaan Malhi, its chief executive and founder, said: “The fact that so many young people can’t afford to move out of their parents’ homes in fear of not being able to get onto the property ladder is alarming.”

By Michael Lloyd

Source: Mortgage Introducer

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Mortgage lending 2.1% higher year-on-year

Estimated gross mortgage lending for the total market in June was £23.5bn, 2.1% higher than a year earlier, UK Finance’s Household Finance Update for June has found.

The number of mortgage approvals by the main high street banks in June fell by 2.1% year-on-year and within this only remortgaging approvals increased and were 3.4% higher year-on-year.

This was offset by the 4.7% reduction in house purchase approvals and 4.3% drop in other secured borrowing.

Henry Woodcock, principal mortgage consultant at IRESS, said: “Despite a recent RICS survey recording newly agreed sales in decline for the sixteenth consecutive month, gross mortgage lending in June has increased from the previous month.

“While a base rate rise has not yet materialised, the likelihood of an increase is still encouraging remortgagers and first-time buyers to secure the best available deals.

“Lenders are offering an array of incentives, not just a competitive rate, with affordability criteria being relaxed to provide more bespoke deals to applicants. So, there is evidence that lenders are still fiercely competing to secure volume.

“With house prices slowing, the momentum should continue into July, with the market seeing an increase in first-time buyers overtaking home movers for the first time in twenty years.”

Eric Leenders, managing director, personal finance at UK Finance said: “Growth in mortgage lending continues to be driven by remortgaging, as borrowers take advantage of attractive deals ahead of an anticipated bank rate rise.”

Mike Scott, chief property analyst at estate agent Yopa, said that the data provides mixed news for the economy as a whole with low unemployment, wage growth picking up and stable inflation.

He said: “However, business investment is restrained, the pound remains weak against other currencies and GDP growth is at its lowest level for five years, suggesting that unemployment may soon start to rise again. If the economy does turn down, it will inevitably feed through to the housing market.

“The detailed figures for June are not yet available, but it’s likely that the drop in the total number of mortgages reflects a large fall in the number of buy-to-let mortgages, with first-time buyer mortgages holding up better.

“The number of remortgages was up by 3.4 per cent, and some of that money may find its way back into the housing market via the Bank of Mum and Dad.”

Source: Mortgage Introducer

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Parents Failing To Save For Their Children As Interest Rates Stay Low

From help with university living costs to a helpful leg up onto the housing ladder, the so-called ‘bank of Mum and Dad” is increasingly expected to do at least some of the financial heavy lifting when children leave home and begin to make their way in the world. But according to a new report from peer-to-peer lending platform, Zopa, many parents are failing to put money aside to help the next generation. Some because they find it impossible to save, others because they want to encourage self-reliance. But as the peer-to-peer lender sees it, low-interest rates are also acting as a disincentive.

The so-called millennial generation arguably faces a tougher set of financial challenges than their immediate predecessors – not least in terms of getting onto the property ladder. In the wake of the financial crisis, Mortgage lenders typically ask for a deposit of at least  5.0% and with the average price of a flat now standing at more than £200,000, that means a deposit in the region of £10,000. With wages remaining fairly stagnant and rents high, saving the initial amount required to purchase a home can be tough, especially for those who are also repaying student debt.

And as a report published in May by the Resolution Foundation think tank highlighted, the generation born since 1980 are decidedly gloomy about their financial prospects. Most expect to be worse off than their parents. That, in turn, puts pressure on previous generations to help out.

Can’t Save/Won’t Save

First the good news. A  majority of parents are making an effort to save and 62% have a long-term strategy stretching over four years or more.

But  Zopa’s research suggests that around 20% of parents are not saving, either for themselves or for their children. Out of that group, more than half say they simply can’t afford to set money aside.  Meanwhile a small but significant minority – one fifth – say they want their children to stand on their own two feet.

As Andrew Lawson, chief product officer at Zopa pointed out, low wage growth and high inflation have made it more difficult to put money aside. However, lack of cash is not the only factor. With interest rates still at very low levels, there is perhaps very little incentive to save.

“Unfortunately, the British public will struggle to find a savings account paying out interest higher than two per cent,” he said.  “And with the most recent UK inflation rate being posted at 2.4 per cent, anyone using one of these accounts as their primary “long term” savings vehicle can most definitely find a better route.”

The survey suggests that Most savers are not seeing their money grow. For instance, 50% of those questioned in the Zopa poll are using standard bank savings accounts. This compares with the 34% who use Junior ISAs (potentially offering better returns) and just 9% investing via Stocks and Shares ISAs.

Savings Options

So-called ‘Easy Access’ savings accounts are attractive to those who want to set money aside in a separate account while also keeping open the option to dip into the pot from time to time and get cash out immediately. However, the price for the convenience of having instant access to funds is low interest rates. Even the best performing easy access accounts offer an annual return of not much more than 1.3% and in many cases, it is lower.

“Notice Accounts”  tend to offer slightly higher rates (the best is currently) between 1.6% and 1.7% but savers can’t access their money immediately.

Despite the unexciting returns, bank accounts provide a great way to get adults and also children into the savings habit. Robert Gardner is the co-founder of RedStart, a charity set up to teach young children about money. He recommends that children have their own accounts.

“Shop around. Most banks and building societies have a children’s savings account. Again a child can learn that if they save £1 a week they can have over £50 at the end of the year to buy a bigger toy,” he says.

Gardner is also keen that children learn about the benefits of longer-term savings.

“If you want to teach your children how to ‘grow’ their money and benefit from compound interest then you should consider either a Junior ISA (JISA) and invest in stocks and shares and or a pension,” he adds.

It Pays to be Adventurous

Investing in the share and bond market takes savers away from the safe comfort zone of the bank account and into the rather more volatile world of the financial markets. But according to Ben Faulkner, Communications Director for wealth management company  EQ Investments, it pays to be adventurous.

“In almost all cases an investment for a child implies a long timescale. This situation is ideal for adopting an adventurous investment strategy, where you accept the greater volatility that comes with the potential for greater returns in the long term,” the spokesman says.

ISAs are an obvious first port of call. The Junior ISA (JISA) in particular has been designed to encourage young people between the age of five and eighteen (or more likely parents acting on their behalf) to save for the future. Under JISA rules, £4,260 can be saved every year and the returns are tax-free. There are risks, though. Returns on Stocks and Shares JISAs are not guaranteed and, in theory, any downturn in the stock market could mean the saver receiving less than has actually been put in. Alternatively, parents could invest in a standard Stocks and Shares or Cash ISA.

Robert Gardner urges parents not to forget pensions, which can provide huge benefits to children later in their lives.

“The advantage of a pension is you get tax relief. That’s free money from the government. Just 50p a week from birth until the age of 10 will grow to be worth over £100,000 by the time they retire. And they can’t access it and spend it when they turn 18,” he says.

There is also a new kid on the savings block in the shape of peer-to-peer lending platforms – of which Zopa is one. These platforms lend to individuals and businesses, with the money sourced from thousands of individual investors who are rewarded with returns that are higher than those offered by bank savings accounts. Zopa itself offers a fund with a 4.6% return to lenders.

So there are a lot of options to consider, each with their own characteristics in terms of the risk involved and the potential return. If the rate of return over a long timescale is the priority, Ben Faulkner says that evidence points to shares and property.

“A child’s portfolio should be invested largely in equities (shares in companies) and property, since these are the types of asset that, historically, have always produced the highest returns, over the long term.”

But the starting is a commitment to saving.

Source: Cash Lady

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Parents in London charge the highest interest rates on loans to their kids

Parents in London charge the highest interest rates to their children when lending money to buy a home.

According to research from crowdfunding property service UOWN, 25.6 per cent of parents in the UK would charge interest on a home loan to their children.

The average interest rate for the so-called “Bank of Mum and Dad” was found to be 4.3 per cent – much higher than standard bank rates of two per cent.

But parents in London propose the highest rate at 4.78 per cent to those who want to get a foot on the ladder.

Then again, it is young people in the capital who are most likely to need the money from their parents, given that the average property price in London now stands at £619,067.

The research from UOWN comes as data from Legal & General found that more young people in London receive help from their parents than in any other region, and also have the highest parental contributions – almost £31,000 per transaction on average.

On the other end of the affordability scale, the most competitive interest rates in England, (or the most open-handed parents), can be found in the north east, where the average interest rate stands at 3.66 per cent.

Outside of London, UOWN’s survey found that that the Scottish Bank of Mum and Dad is the most expensive lender, charging 4.77 per cent.

Parents in Northern Ireland come just behind, charging their children high interest rates of 4.69 per cent, while the Welsh Bank of Mum and Dad comes in third.

The English Bank of Mum and Dad offers the most competitive interest rates of 4.12 per cent.

Interestingly, although over a quarter of parents would charge interest on a home loan to their children, only half of borrowers (50.4 per cent) said they would prefer to borrow money from their family than a bank.

Still, dealing with the Bank of Mum and Dad can be tricky – according to the UOWN’s survey, 1 in 5 people who have loaned money to a family member said the relationship has soured as a result.

Shaan Ahmed, founder at UOWN said: “Millennials today are facing pressures that haven’t been seen before, so it’s no surprise that parents want to help their children onto the property ladder.

“Ultimately the ’Bank of Mum and Dad’ is a testament to parents’ generosity and love across the country, but we need to bear in mind that parents face financial pressures just like everyone else, and therefore need a return on their investments.“

Source: City A.M.