An unusual new bank has taken one of the top spots in a list of the biggest lenders. It’s not a High Street banking brand, but instead the Bank of Mum and Dad.
As a result of parents gifting or lending money to get their kids on the housing ladder, the Bank of Mum and Dad has entered the top ten biggest lenders. According to new research from Legal & General, parents contributed an average of £24,100 to first-time buyers this year.
This gifting is around £6,000 more than the average parental contribution last year, perhaps a consequence of rising property prices and the challenges faced by younger people trying to buy their first homes.
It means that parents will give their children around £6.3bn this year, which ranks the Bank of Mum and Dad in tenth place if it was a mortgage lender.
The research, based on a poll of 1,600 parents, found more than half gave financial assistance to their children to buy homes. This financial assistance is coming from cash savings, pension withdrawals and equity release.
The Bank of Mum and Dad would push Clydesdale Bank off the top ten list; it ‘only’ issued lending of £5bn to its borrowers last year.
According to L&G, thousands of homebuyers are now reliant on their parents to either get a step on the housing ladder or buy more expensive property. Almost one in five parents said they had or would give financial support to a family member so they could buy a home. These parents feel it is their responsibility to offer financial support.
It’s worth noting though that giving financial support to children can worsen your standard of living in retirement. For this reason, it’s essential to carry out a comprehensive financial planning exercise before gifting or lending money, to consider the impact of this generosity on your financial future.
The survey found that more than a quarter of parents were not confident that their gifts would leave them with enough money in their retirement. 15% of parents surveyed said they had already accepted a lower standard of living, as a result of making gifts.
Chris Knight, chief executive of L&G’s Retail Retirement division, said:
“There are a vast range of considerations today’s retirees face when it comes to planning their finances, from whether they can afford to help their children buy a home, to setting aside funds for any future care needs they may have.
“Parents and grandparents across the UK want to see their loved ones settled in homes of their own and are giving generously as part of the Bank of Mum and Dad. Many are using their pensions and savings to help out and unfortunately this could be leaving some facing a poorer retirement, especially if they don’t get the right advice.”
Working with a Financial Planner before helping children out financially is also the best way to ensure cash is released from the most suitable source, from an investment and taxation perspective.