It is now the UK's ninth largest mortgage lenderby David Hagarty / May 23, 2017 / Leave a comment
Britain’s main political parties are in agreement that the UK has a broken housing market and that a bold solution is needed—before the housing crisis gets much worse.
Of course, it’s already causing serious problems. Legal & General’s “Bank of Mum and Dad” report puts the blame squarely on the supply side, saying in its media release that: “we are simply not building enough houses. We need to build more homes for the young, old and families alike, more quickly and cost effectively.”
The squeezing of the supply of new homes means house prices have risen to unaffordable levels, up by more than 300 per cent in England over the last 20 years. First time buyers are suffering the most. The report shows that two thirds of those under 30 have received financial help from friends and family to get on the housing ladder. Incredibly, the Bank of Mum and Dad (BoMaD) is now the UK’s ninth largest mortgage lender and will provide over £6.5bn in payments in 2017, up from £5bn in 2016. This generosity will fund deposits for nearly 300,000 mortgages, allowing homes worth £75bn to be bought.
A symptom of the problem, not its solution
The report describes how the Bank of Mum and Dad continues to grow in importance in helping young people take their early steps onto the housing ladder. The intergenerational inequality that creates the demand for BoMaD funding continues to widen—younger people today don’t have the same opportunities that the baby-boomers had, including affordable housing, defined benefit pensions and free university education. Parents want to help their kids get on in life, and the Bank of Mum and Dad is a testament to their generosity, but it is also a symptom of our broken housing market.
The report pulls no punches in describing the BoMaD as a result “of the problems in the UK housing market, not its solution.” It recognises that UK social inequality means that it fails to address the needs of “aspiring home-owners who work hard but cannot afford a deposit and don’t have friends and family able or willing to help.
A postcode lottery of differing levels of help
You’d expect the contributions towards house purchase to be higher in London, where the average house price is now £490,000. The report finds that friends and family contribute an average £29,400 in London, compared with £21,400 in the West Midlands and £15,800 in Yorkshire. Yet it’s the south west that is the most generous, with an average £30,000 being “loaned.” And, of course, £29,400 doesn’t go very far in London, being just 6 per cent of the cost of the average home compared to the 20 per cent that the BoMaD finances in the North East.
In fact, most BoMaD payments aren’t loans at all. In 56 per cent of cases it’s a gift, with 21 per cent being interest-free loans and just 2 per cent are loans with interest. It’s no surprise where the help is going. Millennials, or those born between the early 1980s and the late 1990s, are the biggest recipients, with 79 per cent of funding from the BoMaD.
The average UK home now costs nearly £220,000 and the average first-time-buyer’s deposit is more than £32,000, so young people are turning to BoMaD to raise the deposit. 76 per cent of people who received help from friends and family say that the money went to pay the deposit, with only 8 per cent using money for mortgage repayments.
Subsidising rent of up to £1,000 a month
Given that we now describe under 30s, or millennials, as “generation rent” it’s not surprising BoMaD is also helping to finance rentals. A surprising statistic the report unearths is that 16 per cent of renters helped by BoMaD receive over £1,000 for each rent payment, with 18 per cent being given between £501 and £1,000. So not only is home ownership unaffordable for young people, but the cost of renting is increasingly beyond their means, too.
Will the bank continue to flourish?
Unfortunately, the BoMaD has a very rosy future despite the extravagant promises to solve the housing crisis from politicians of all colours. Earnings for young people continue to be sluggish. 27 year olds are earning no more in real terms than 20 years ago. Yet in that time house prices have more than quadrupled and many young people now have student loans to repay.
Is it too much to hope that future governments will keep their promises and make housing a priority? The UK is still only building around 50 per cent of the 250,000 homes each year that it needs to.
The solution lies in building more homes for all generations: for young people to buy and rent, for families and for over three million older people, for whom it’s nearly impossible to find suitable elderly accommodation. Legal & General is doing its bit. We’re building new homes to buy throughout the UK. We’ve made private rental schemes and social housing a priority with a £1bn fund to invest to build new large scale rental development properties. We’ve over 1,000 build to rent homes under construction, or in planning.
The UK needs to overcome the shortage of bricks and mortar and qualified labour. Our new modular homes business responds to these issues by creating a ready supply of thousands of precision built, energy-efficient lower cost homes.
We’re now looking for other institutional investors to follow suit. The new City Mayors will have a crucial role to play in creating an alliance between the housing and investment industries and the public sector.