Getting on to the property ladder

Jonathan Wright
Jonathan Wright
Fidelity Personal Investing31 May 2018

Quick quiz, can you name the UK’s ninth largest mortgage lender, expected to lend £5.7billion this year to help more than a quarter of the population buy a home? I’ll give you a clue, it’s not one of the big four banks, neither is it a building society nor a new challenger bank.

The answer, of course, is the ‘Bank of Mum and Dad’, or BoMaD for short.

Research out this week from Legal and General and the Centre for Economics and Business Research suggests BoMaD will help more than one in four (27%) buyers or 316,600 people buy a home - up from 298,300 or 25% last year.

However, it appears parents will be lending less. According to the survey the average parental contribution for home buyers this year will be £18,000, down 17% from last year’s £21,600.

Unsurprisingly, under 35s are most likely to receive BoMaD assistance with nearly three in five receiving money from friends and family to buy a property. But even homeowners aged between 45 and 55 are now relying on BoMaD, with one in five (20%) receiving assistance from parents. One cause of this is older children receiving inheritances or gifts from more elderly parents wishing to manage their potential inheritance tax liabilities.

Latest figures show mortgage lending increased in April with the number of mortgage approvals increasing by 11% compared to a year earlier, according to UK Finance, a trade association. This could be due to buyers in April wanting to lock in cheap deals before a feared rate rise in May which actually didn’t materialise.

BoMaD contributions are highest in London (almost £31,000 per transaction on average) and lowest in Scotland (just under £11,000).  With London prices still the highest in the country, it is understandable that more buyers in London (41%) receive help from their friends and family than in any other region.

With the fear of an imminent rate rise reducing somewhat and the Bank of Mum and Dad tightening its purse strings, the prospects for property price rises in the near term continue to look mixed. According to Land Registry figures, house prices in London dropped in March, with the annualised rate of inflation dipping to minus 0.7% in the capital, the steepest fall since 2009.

The falls in London contrast with continued rises across the rest of the UK, with the overall rate of house price inflation standing at 4.2%, with the highest rise in Scotland at 6.7%. The Office for National Statistics (ONS), which uses Land Registry data to compile the house price figures, said the average price of a home in the UK in March was £224,000, £500 less than the month before but £9,000 higher than in March 2017.

Whatever the regional differences, one thing is for sure: the Bank of Mum and Dad continues to play a vital role in helping house buyers get onto the property ladder, whatever their age. For many parents this comes at a time when they are approaching retirement and the desire to help their children becomes another factor to add into the calculations on when they can afford to retire.

Of course, it all comes down to forward planning and using the various tax-wrappers available such as ISAs and pensions can be a helpful way to invest for you and your family’s future. A Junior ISA is one way to do this. With the Fidelity Junior ISA you can open an account for your child and start a regular savings plan from as little as £50 per month. Friends and family can contribute to it and your child can access the money in their account when they turn 18. The earlier you start, the more time this money has the chance to grow and compound over time. This could take some of the pressure off your own finances at a time when you may want to retire and invest your money in activities you’ve put off for years.

Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. Junior ISAs are long term tax-efficient savings accounts for children. Withdrawals will not be possible until the child reaches age 18. A Junior ISA is only available to children under the age of 18 who are resident in the UK. It is not possible to hold both a Junior ISA and a Child Trust Fund (CTF). If your child was born between 1 September 2002 and 2 January 2011 the Government would have automatically opened a CTF on your child’s behalf. If your child holds a CTF they can transfer the investment into a Junior ISA. Please note that Fidelity does not allow for CTF transfers into a Junior ISA. Parents or guardians can open the Junior ISA and manage the account but the money belongs to the child and the investment is locked away until the child reaches 18 years old. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.