The Bank of Mum and Dad goes social

Robyn Hall

August 31, 2016

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Over a quarter of parents would consider funding other people’s children onto the property ladder in exchange for a return on their investment, research by Legal & General and think-tank Cebr reveals.

Legal & General’s Bank of Mum and Dad research previously revealed that the financial support from parents and family for homebuyers make them the equivalent of a top 10 mortgage lender in the UK – lending £5bn across the UK this year= and being involved in 25% of all property transactions.

Stephen Smith, director Legal & General Housing Partnerships, said: “The readiness to consider funding other people’s children is clear proof that across the country people are looking for an innovative way to increase homeownership.

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“An extended period of low interest rates and new restrictions on the buy to let market have left older generations searching for a good return on their investment. Initiatives for funding other people’s children offer a new way to invest into the property market, as they help to pair up older generations looking for a better investment return with prospective homeowners who need financial help.

“Clearly the demand for investment opportunities is there – now we need to see if the industry responds with product innovation to enable “The Bank of Mum and Dad” to spread beyond funding the immediate family unit.”

The research also showed that in 2016, 24% of potential investors said they may consider funding other people’s children, with a further 3% saying they would “definitely consider” an option to fund other people’s children.

In terms of investment returns, 39% of potential investors expected to receive a financial reward in the form of a loan repayment with interest.

A further 21% would expect monthly rent from the occupier and 17% would want a share in the ownership of the property.

The region with parents most likely to consider financially supporting other people’s children onto the housing ladder was Scotland, with 38% stating this is something they would think about as an investment option.

Parents and grandparents in the North East were a close second, with 32% admitting they would consider this in the future, with 30% of Londoners agreeing. Those in the West Midlands, however, were less taken by the concept, with only 17% saying funding other people’s children would be something they “might consider” in return for a financial reward.

Smith added: “Younger generations today do not have the advantages that previous generations had, including a sufficient supply of affordable housing that delivered strong returns.

“The simple fact is that we do not have enough homes to meet the rising demand for homeownership in the UK, which is greatly affecting the availability and cost of property for young people.

“It is an absolute necessity to build more, especially as the Bank of Mum and Dad may start to face a supply crisis of its own. Fixing this problem will require more than just help from the government, however.

“Industry leaders like Legal & General can help transform not just residential housing, but even our urban areas in which new homes are constructed. Infrastructure, employment and economic growth, are three key pillars for creating prosperous communities where people want to live.”