The bank of Mum & Dad is set to lend £6.5 billion this year to support the cost of both renting and buying a property. This is up 30% on last year. Parents are now involved in 25% of all property purchases (This could be a new business venture parents, you want to start charging interest!)
Hear me out for the whole of this blog post, because I too will raise my hand and admit that the first property I ever brought was done through getting my parents to extend their mortgage so I had £50k to put down as a lump sum. It worked well for all involved as that’s now a great buy to let and I give my parents a share of the profit… this works extremely well because it reduces my taxable profit and I’m paying my parents back their initial investment!
Our parents, being our parents, also want the best for us
When I read how much parents were lending, especially on renting, my knee jerk reaction was to think why on earth aren’t people able to do it themselves. Everyone is able to save something and renting a property is a few thousand pounds upfront, how is it not possible to get this together. (Note: My parents have never helped me to rent a property and I did that for 6 years and moved 3 times)
Yet, I also understand (I think) why it’s happening. It is in our nature to have the best we possibly can get… right now. Rather then gradually stepping up that ladder of increasing your home size, making a plan of saving for a deposit, we just want the best now. We are constantly comparing ourselves to other people, looking and those amazing posts on Instagram and Facebook, or in the news. We want something stunning, we want to show that we can also obtain that luxury lifestyle. And, our parents being our parents, also want that for us too. Which, it’s why, when we don’t have the cash flow ourselves we look to our parents to fund the transaction.
The problem with this is that it is setting that standard that we can afford more and so if we can afford those higher rents, that increased deposit, then the property market is going to follow suit. Economics states that supply follows demand. If the market shows that actually, we want to pay those higher rents, we want those £500,000 starter homes, well that’s what the market is going to strive to provide.
The problem is that those people without parents with huge cash reserves can’t keep up. They can’t afford the increased prices. And on the other side, the property market won’t slow down for those that can’t afford it. After all it’s a money-making industry, right?
That leads me back to my initial question: is the bank of Mum & Dad driving up property prices? I have no cold, hard proof. But, let me flip the question: if the 25% of property transactions weren’t backed by Mum & Dad, would those people be able to afford as expensive accommodation? Probably not. Therefore, supply would have to accommodate for the demand. And as we know as Landlords, if we can’t find anybody to take our properties at a certain price we have to drop it to attract a tenant or a buyer…
I’ll leave you with this. Mum & Dad I’m grateful for you providing me with that leg up, as I’m sure many other daughters and sons are across the country. But, let’s get down to it, there’s probably quite a good chance that you are also helping push property prices up.
NC
