The bank of mum and dad has expanded to become the bank of family. Its expansion has enabled it to underwrite an even bigger percentage of the UK’s mortgages. This means it has developed even more influence on the UK’s property market. This influence is, however, somewhat controversial given that not everyone has access to it.
How the bank of family came about
The term “bank of family” appears to have been coined by Legal & General. Recently, they undertook a study that highlighted the importance of non-parental assistance in house purchases. Grandparents in particular tend to be generous contributors.
Potentially, this is because they are in a strong position to do so. For example, they may be downsizing themselves and therefore be cash-rich. Moving this money to younger family members could reduce their estate’s liability for inheritance tax. It may also reduce their exposure to care-home fees later.
Younger members of the family are, however, also increasing the help they provide. For example, the Legal & General study found that 11% of first-time buyers received help from siblings. Five years ago, it was just 5%.
Family members, especially parents, may also provide non-cash assistance. In particular, they may allow young adults to stay with them rent-free while they save for a deposit.
The bank of family’s lending in figures
Overall, the bank of family is expected to provide over £8 billion of support to borrowers. It will underwrite almost half of purchases made by the under-55s. As you might expect, the assistance is unevenly distributed.
Firstly, there is a clear and understandable bias towards first-time buyers. Onward movers certainly face challenges but they at least can benefit from building up equity in their home.
Secondly, there is a clear divide between regions. Possibly surprisingly, the East of England was the area where the bank of family provided the highest level of support. London came in a close second. Moving out of these areas and into the Midland and North, the level of assistance dropped.
The overall impact of the bank of family
The bank of family clearly plays an important role in getting individuals on the housing ladder. By doing so, it stimulates demand for property and, per the law of supply and demand, helps support house prices.
Ironically, however, this is really only a benefit to people looking to downsize. Onward movers looking for bigger property would benefit from it being priced more affordably. It wouldn’t necessarily matter if their existing homes also reduced in value. First-time buyers would certainly benefit from lower house prices.
In fact, even those not in a position to buy would potentially benefit from lower house prices. If landlords paid less for their buy-to-let properties, they would be able to offer lower rents. This in turn would make it easier for renters to save for a home of their own.
Realistically, however, the shortage of property in the UK is a strong incentive for people to buy if they can. At a minimum, buying gives people a greater level of stability than renting. At most, it can be an astute financial investment that can literally benefit generations.
The personal cost of the bank of family
For some people, the bank of family really is a straightforward, no-strings-attached benefit of generational wealth. For others, the strings attached are simply stronger versions of the strings that were attached anyway. In general, family members do whatever they can to look after each other. That’s part of what makes a functioning family.
For some, however, the price of accessing the bank of family can be uncomfortably high. It can result in obligations people would rather have avoided. It can result in feelings of guilt if recipients know or feel that people are donating more than they can really afford.
Ideally, therefore, the bank of family will be, if not put out of business, then at least given a restricted role in the UK’s housing market. The best, if not only, way to achieve this, is to increase the availability of housing stock. One possible way to do this (and fairly quickly) could be to repurpose office units that have become obsolete due to remote/hybrid working.
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