Bank of Mum and Dad is UK’s Top 10 Mortgage Lender

Posted by Staff Reporter ( on May 06, 2016 12:26 PM EDT
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Inequality To Be A Key Election Issuemore big
BATH, ENGLAND - JANUARY 16: A property is displayed for sale in a window of a upper market estate agents in the city centre on January 16, 2015 in Bath, England. Although house prices are among the highest in the UK the average earnings, are in contrast, among the lowest in England and with the average house price now rising to £300,000, it means that house prices are on average ten times annual incomes. Along with health and the economy, perceived inequalities in wealth are likely to be a key election issue. (Photo : Matt Cardy/Getty Images)

House prices in the United Kingdom have increased to sky-high levels that many people are having a hard time keeping up with rental rates, much more purchasing their own homes. For first-time buyers, it is a big challenge to get their foot on the market. But thanks to the Bank of Mum and Dad, they can say goodbye to their renting days.

A recent analysis conducted by Legal & General (L&G) revealed that lending from parents accounts for 7 percent of the average purchase price of a home in the U.K, BBC News reported. This helps their children get into the housing lender. L&G expects that this funding from parents will amount to £5 billion this year and help finance 25 percent of all mortgage transactions in the country in 2016. The amount is a significant contribution to the market that if it were a formal business, the Bank of Mum and Dad will be a top 10 mortgage lender.

BBC News pointed out that on one hand, lending from parents highlights a problem - there is a huge gap between house prices and wages. Nigel Wilson, the chief executive of L&G, said that the Bank of Mum and Dad funding method is reaching a "tipping point" already, and there is a need to address the housing supply in the country. An improved housing inventory would enable demand to be met and consequently, home prices will stabilize.

The Guardian reported that according to Nationwide, the biggest building society in the U.K., the average price paid for a property in the country saw another record high at £202,436. It was a 0.2 percent increase in April from the previous month. Nationwide's chief economist, Robert Gardner, said that the prices may fall in the coming months following the implementation of the new stamp duty last April 1. However, it is also possible that the price growth will pick up again given a number of factors such as employment growth and low borrowing costs.

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