Milsted Langdon has said new research shows that the so-called Bank of Mum and Dad now plays an important role in the world of finance.
New data from Legal & General has shown that parents will lend over £5 billion in 2016 to provide deposits for over 300,000 mortgages, which will in turn help to purchase homes worth £77 billion.
It is estimated that 25 per cent of all mortgages in the UK this year will be financed by parents and relatives, placing them in the same league as some of the UK’s top lenders.
Kevin Butler, Consultant Economist at Milsted Langdon, said: “The Bank of Mum and Dad, or indeed Granny and Grandpa, has become an established part of financial activity, especially in the mortgage market, over the past few years. This trend has accelerated since the 2008/9 recession, as banks were reluctant to lend to households and businesses in the wake of the recession until about three years ago.
“In fact, although the statistics need to be interpreted with care, the total value of gifts or advances from the 55 year old plus age group (mums, dads and grandparents) dwarfs the balance sheets of some of our largest banks.
“This growth, in what is known as “financial disintermediation”, is set to continue as the older generations seek to redress some of the perceived inequalities between generations that have come about – largely through government policies – over many years. Perhaps this trend can be seen as the Baby Boomers, who can afford to, giving something back.”
He added that, while the trend had played its part in increasing house prices, other factors such as a shortage of supply, the return of banks to mortgage finance after the post-recession famine, government policies and overseas buying in London had all played a part in the recent property price boom.
In 2014, Milsted Langdon conducted similar research to Legal & General; the results showed that the total assets of the Bank of Mum and Dad and more importantly the Bank of Granny and Grandpa far exceeded that of some of the UK’s leading banks and lenders such as HSBC, Barclays and RBS *
Roger Isaacs, Forensic Partner at Milsted Langdon, added: “Maybe this reflects the price that parents are willing to pay faced with the alternative of having their children moving back in with them while they save for deposits. If you factor that in with the fact that it is good inheritance tax planning, the cost may not seem quite so high.
“Parents need, however, to think carefully about whether the funds they make available are gifts or loans – and preferably obtain some written evidence, not just for the tax man but also to ensure that, if something goes wrong in the future, such as their children getting involved in a contested divorce, they avoid what can be very costly ambiguities.”
(* Link to Powerpoint Presentation for data on “Banks of mum & dad and granny & grandad”)
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