"People across the country are looking for alternatives to traditional saving schemes as a way of securing greater returns on their investments."
This is clearly a growing trend. Legal & General’s research recently found that the Bank of Mum and Dad will lend £5 billion to the next generation of UK homeowners in 2016, making it the equivalent of a top 10 UK mortgage lender.
But where do potential buyers turn to if their parents don’t have the ability to provide them with the financial support they need? Recent research by Legal & General has discovered that in some cases this funding could come from someone else’s family, with over a quarter of UK parents stating that they would consider funding other people’s children onto the property ladder.
These parents would, of course, expect a return on their investment, whether through monthly rental payments or by lending the money as a loan to be repaid with interest. It’s a thought provoking approach to the mortgage market, as it shows that people across the country are looking for alternatives to traditional saving schemes as a way of securing greater returns on their investments.
But how could such an initiative work? One possibility is that borrowers could be matched with individuals looking to lend through an independent organisation. Alternatively, the industry could design products that allow investors to take a share in any increase in a property’s value. In any case, there is clearly demand for this type of investment, so it will be interesting to see how the industry responds to the Bank of Mum and Dad branching out.
Whilst these developments may provide an alternative source of funds for some borrowers, the Bank of Mum and Dad is actually a symptom of the problems plaguing our housing market, rather than a long term solution.
People across the country are clearly looking for innovative ways to get a return on their investment, as well as help future generations in their homeownership ambitions, but this is further evidence of the rising unaffordability of property in the UK. The fact that parents and grandparents now lend enough to be a top 10 lender is an obvious sign that we are still not building enough homes to meet the rising demand for property in the UK. Ultimately, that is where the crux of the issue lies.
Although it may be helpful to many, the Bank of Mum and Dad is only a temporary fix, in that it represents an unsustainable form of support that cannot last forever. If we really want to give our children and grandchildren the best opportunity to become homeowners, the Government needs to put hundreds of thousands of affordable homes at the very top of its social agenda.
