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  • Industry Insights
  • January 2021
  • Author: Alison Pallett

The Bank of Mum and Dad has been busy in 2020

Our Director of Sales, Alison Pallett, gives her view on how the 'Bank of Mum and Dad' has had to step up in 2020.

Highlights

  • Where has the housing wealth of the over 55's come from?

  • How using housing wealth is being put to good use for the young

  • 2020 has been a wakeup call, so what does the future look like?

Given that 2020 was a year like no other it seems opportune to review how the Bank of Mum and Dad (not forgetting grandparents) fared over those 12 months.  This informal institution actually ranks as a top 10 lender. 

Early estimates suggest that in 2020 it will have provided £3.5bn in gifts and loans.   Much of this was to help the younger generation get on, or move up, the housing ladder.  Data from Legal & General showed that nearly a quarter (24%) of homebuyers said they were now more reliant on financial support from the Bank of Mum and Dad following the pandemic.  A recent report by Key Retirement Solutions shows that over £0.5bn was provided by the over 55s in 2020.

This generosity is not because the older generation have lots of spare ready cash.  Smaller
pension pots, greater financial responsibilities and longer retirements mean that many over 55s are having to watch the pennies more carefully than before.   In most case they can only afford to help loved ones because they find themselves sitting on considerable housing wealth.

Where has the housing wealth of the over 55s come from?

The Housing Act of 1980, gave five million council house tenants in England and Wales the Right to Buy their house from their local authority.  Some look back on this as a disaster, the
root cause of many issues which bedevil our housing market and stock.  Others, myself included, see the upside – it enabled many to achieve the previously unattainable dream of home ownership. 

During this period of change I worked as a mortgage clerk with a local building society, long swallowed up now.   My abiding memories (apart from how difficult it was to type a mortgage offer on a manual typewriter!) was of the delighted people coming out of the manager’s office with funding agreed.

Since then property prices have steadily risen way above the rate of inflation, partly as a result of new house building failing to keep pace with demand.  That’s good news for older
homeowners.  However, stagnant wage growth means it’s much harder for younger people to reach the bottom of the housing ladder. 

The over 55s are not to blame for this – although they are the beneficiaries of these trends they certainly didn’t cause them!  What’s more, as we now see, the older generation
are doing their best to redistribute some of this housing wealth and rectify matters.

One in every three equity release mortgages have been used to make gifts for family

Putting that housing wealth to good use for the young

At LiveMore Capital we’re on a mission to facilitate this process by making it easier for a greater number of homeowners aged 55 and over benefit from an Interest Only mortgage. 

Since our launch in June of last year we have been able to help many people that other lenders couldn’t.  These borrowers used the funds in many different ways but it is so satisfying to see many of them helping their children become homeowners.  Far from causing problems for the younger generation they are helping to solve them! 

In a recent webinar Stuart Wilson, Head of Marketing at More2Life, noted that one in every three equity release mortgages have been used to make gifts for family.

2020 has been a wakeup call

The COVID-19 crisis has upended the world we know and where the pieces will land eventually is anybody’s guess.  It has certainly given us all pause for thought and highlighted just how tough things are for the young. 

Education has been put on hold for kids and teenagers while many of those in their 20’s and 30’s have seen their careers stalled.  A lot of parents are coming to realise that their
kids need financial support right now.  A gift from the Bank of Mum and Dad makes a lot more sense than making them wait years for their eventual inheritance. 

  • Industry Insights
  • January 2021
  • Author: Alison Pallett