Do you have adult children who are looking to buy a house and start a family? Are you wondering how much money is appropriate to give them for the same? Or Are you an adult child considering asking your parents for financial assistance to buy a house? If you belong to either of the categories, your confusions are valid. 

A recent study’s findings suggest that it is more difficult for young adults to climb on the property ladder now than earlier generations by demonstrating that average house prices in the UK have increased faster than earnings over recent decades. Rising home prices, ballooning student debt, and stagnant salaries are making things worse. Therefore, parents and older generations, who traditionally benefited from high rates of homeownership and home prices, are now making an effort to help their younger family members financially. 

.In light of such transactions, UK estate agents, websites, and others are also encouraging young people to learn the fundamentals of property ownership so that they may be able to maintain the houses that have been entrusted to them. 

Parental financial assistance: Important statistics  

The “Bank of Mum and Dad” system refers to the practice of viewing one’s parents as a source of financial assistance or support, particularly in the context of property purchase. According to recent research, millennials and Generation Z are turning to their parents more than ever to buy homes because they cannot do so on their own. 

Legal & General published a research¹ in October 2020. The findings are as follows: 49 per cent of first-time buyers below 35 years of age received financial assistance from their parents (BOMaD) to purchase a home. Furthermore, two-thirds of these buyers (65%) said they would not have been able to buy without the assistance and would have had to wait for an average of at least four years. 

In accordance with the trend, the study found that parent ‘lenders’ played an active role in 73,160 property purchases among those under the age of 35. This represents only an 8% decrease from transaction levels in 2019. (79,631),

According to an Apartment List analysis of census data, millennials are less likely than other generations to own a home- 60% of millennials have purchased a home at the age of 40, compared to 64% of Gen Xers and 68% of Baby Boomers at the same age.

Reasons for parents’ generous donations

Although more and more children depend on their parents and the country is struggling with the economic impacts of COVID-19, lenders from the Bank of Mum and Dad (BoMaD) are nevertheless eager to continue making generous donations. Nearly 74 per cent of people whose income has decreased due to the pandemic say they are still keen to help loved ones climb the property ladder. Some of the reasons for this attitude include:

To reduce the monthly mortgage payment 

Larger down payments on properties can result in cheaper mortgage payments, which can then result in lower interest rates. As a result, parents provide financial assistance so their children can put down a higher amount.

To steer clear of rising rent

Real estate professionals claim that wealthy families have traditionally assisted relatives who are moving into new homes, especially in pricey metropolitan areas. However, in recent years, the cost of rent skyrocketed, making parents want to purchase a home for their adult children instead of allowing them to waste their money on costly rent. 

As an alternative to College Housing

In the UK, students have to pay an average rent of £148 per week or approximately £641 per month. As one might expect, the university with the highest rent is located in London. Therefore, Purchasing a property for one’s children in a large city is a way to invest in real estate while avoiding expensive student housing.

Conclusion

Many parents are co-signing mortgages, contributing funds for a down payment, or purchasing homes for their adult children outright. In 2020, the average loan from the Bank of Mum and Dad was £20,000. Thus, the presence of millennials and generation Zs is growing substantially in the property market despite the challenges posed by Covid-19 due to parental support and assistance.