Bank of Mum and Dad now a top 10 mortgage lender?

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This bold claim is made on behalf of Mums and Dads throughout the land by Legal and General and the Centre for Economic and Business Research (CEBR)

New data also shows that many people could be accepting a more uncertain retirement after financially supporting family members to buy a home. These latest findings follow earlier research from Legal & General which showed that this year the average BoMaD contribution has risen by more than £6,000, to £24,100.

The rise means that the Bank of Mum and Dad is now the equivalent of a top 10 UK mortgage lender, gifting a total of £6.3bn in 2019. Equivalent because lending and gifting aren’t quite the same thing!

I’m going to be on BBC Radio this morning debating with Iona Bain whether this is fake news or whether L&G have discovered what every Mum and Dad knows, that when it comes to our kids – financial judgement flies out of the window!


BoMaD  bonkers!

If we are to measure the Bank of Mum and Dad by any normal standards, then it is a bonkers institution. Nearly a fifth of over-55s (19%) are  gifting money because they feel they have a responsibility to help. But 26% of BoMaD lenders are not confident they have enough money to last their retirement after providing support

Despite this, BoMaD lenders are increasingly using equity release to help family with deposits and fund retirement

Thousands of over-55s are generously gifting money as part of the Bank of Mum and Dad (BoMaD), using savings and even pensions to help their family onto the housing ladder

Apparently this  new research shows that when it comes to gifting money, the Bank of Mum and Dad is drawing on a wide range of sources to financially support other family members with a deposit.

Although more than half are using cash (53%), 9% are cashing in lump sums from their pension savings, 7% are using their pension drawdown and 6% are drawing on their annuity income to help support their loved ones’ homeownership ambitions.

But despite this generosity, digging ever deeper into their retirement savings is leading some over-55s into a more uncertain retirement.

Over a quarter (26%) of BoMaD lenders are not confident they have enough money to last retirement after helping their loved ones and 15% have had to accept a lower standard of living. A small number (6%) are even choosing to postpone their retirement.

If BoMaD had been regulated by the Prudential Regulatory Authority, it would have been closed down long ago! BoMaD is a bonkers lending institution!


It’s all about the boomer’s obsession with property

The research apparently shows that parents and grandparents across the UK are overwhelmingly in favour of supporting their loved ones to buy a home.

More than half (56%) of BoMaD lenders who have or would consider helping family to purchase property said they are willing to because ‘it was a nice thing to do’. Almost another fifth (19%) said they feel it’s their personal responsibility to help out.

Bottom line, we are passing on to a next generation , our obsession with home ownership. Whether the decades-long boom in property prices will continue for generations to come is an open-question.  The assumption is that it will and any such assumption is dangerous.

I think a much stronger driver among our kids is  the state of Britain’s rental market which is at best shabby and at worst so set against the tenant as to make property ownership a must win. The comments about personal responsibility may be born out of guilt as well as parental love!


And here comes the advert

Currently equity release is some way down the pecking order for boomers. The “research” suggests that this is changing. The sceptic in me thinks that this may be where research turns into advertorial!

However, the Bank of Mum and Dad research has also revealed that consumers are increasingly considering other solutions that can help them to support family members but also pay for the retirement they want to lead.

Unlocking housing wealth with equity release is becoming more popular with the over-55s and many are now using the money to help with a deposit.

16% of BoMaD lenders have or would release equity and use that money to financially support their children or grandchildren. This makes it the third most popular source of funds for the Bank of Mum and Dad.

But BoMaD lenders are using these funds to help with their own retirement ambitions too.

More than a quarter (26%) would or have used their housing wealth to fund home renovations and nearly three in every five (58%) parents and grandparents are using it to free up cash to stay in their own home. Across the over-55s surveyed who haven’t released property equity already, well over a quarter (29%) said they would consider drawing equity from their home with a lifetime mortgage.


The real lender is not BoMaD but Legal and General 

Chris Knight, Chief Executive, Legal & General Retail Retirement said:

“There are a vast range of considerations today’s retirees face when it comes to planning their finances, from whether they can afford to help their children buy a home, to setting aside funds for any future care needs they may have. Parents and grandparents across the UK want to see their loved ones settled in homes of their own and are giving generously as part of the Bank of Mum and Dad. Many are using their pensions and savings to help out and unfortunately this could be leaving some facing a poorer retirement, especially if they don’t get the right advice.

With these pressures, it makes sense that the financial services industry should help provide solutions to suit a range of circumstances.

Housing wealth has the potential to play a hugely transformative role for both Britain’s retirees and the next generation of homeowners. There is around £1 trillion of property equity owned by the over-55s. Not only could this wealth be transferred across the generations to provide a ‘living inheritance’ for children, but it could also give many retirees the financial freedom they need to enjoy the colourful retirement they really want.”


And if you want to buy a sausage with your bricks – seek professional advice

As usual the message is mixed.  We can borrow from ourselves, but we should do so with expert help. L&G is already protecting itself from the next potential mis-selling boom. As with pension transfers, financial advisers are being used as a “litigatory condom”.

While the Bank of Mum and Dad plays a positive role in helping thousands of people onto the housing ladder, Legal & General also wants to encourage more over-55s to seek professional advice before using their retirement savings to help loved ones. This year’s research shows the situation is improving.

Last year, just 12% of BoMaD lenders said they had sought professional advice from a mortgage broker, while nearly a third (31%) this year had or would seek advice. However, nearly half of all BoMaD lenders (44%) still hadn’t taken (or would not take) any advice at all before gifting money.

Legal & General believes that by supporting more consumers to take advice, they will be in a much better position to make informed decisions about their retirement income and financially supporting the homeownership ambitions of their family.


“The litigation condom”

As usual, it is ultimately our fault if we buy equity release products without paying an adviser to take the blame

“Thousands are still dependant on the Bank of Mum and Dad to take their first or next step on Britain’s housing ladder. The generosity of parents and grandparents is inspiring, but many are making big financial decisions without adequate planning or professional advice.

Legal and General finish with a message to the Equity Release Council, the Council of Mortgage Lenders and presumably the FCA

As an industry, it is crucial that we provide the products and solutions people need in later life, as well as encourage them to seek the support of advisers who can help them navigate this increasingly complex landscape.

I think this is fair enough, advisers are critical to managing the complexity that the pension industry has created.

But in this bonkers world where we cannot take simple decisions like gifting money to our kids without “taking professional advice”, haven’t we lost the plot?

Should it really be that hard for ordinary people to pass the keys to the kids, or the kids to look after their parents in later life?

I expect there are many families, particularly those with strong links to family systems that originate from countries without the welfare backstops we have in Britain, for whom the litigation condom is entirely irrelevent.

They will bypass the need for financial intermediation and the need for complex financial products such as equity release (and pensions)/

For many ordinary people, being a Mum and Dad is about creating the inter-generational solidarity that allows families to by-pass the financial services industry and remain self-reliant.

Ultimately we don’t need a Bank of Mum and Dad, we are all  Mums and Dads!


About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in advice gap, age wage, pensions. Bookmark the permalink.

4 Responses to Bank of Mum and Dad now a top 10 mortgage lender?

  1. John Mather says:

    I think you need to look back in time to find the causes

    One was the Thatcher Government obsession with property ownership The introduction of the right to buy decimated Public housing. Simultaneously Building Societies who had balanced savings with borrowing and kept house prices at 3.5 x earnings were allowed to borrow in the market to lend which fuelled house price rises. So much so that the large institutional investors went into Estate Agency loosing billions in the process

    As the economy could not support socially desirable programs such as Education maintenance grants and tuition fees were radically changed. The borrow to consume culture had arrived along with sub prime securities based on this folly

    With savings being diverted to debt servicing the public stopped saving. Companies dumped socially desirable pension schemes pushing risk back to the individual who have done a very poor job for themselves

    Advice, the figures speak for themselves since 1988 the number of advisers has fallen by over 90%

    House prices are correcting showing first in the high end and now in land prices.

    The consequences are clear the equity release companies are going to have negative equity magnified by longevity. What happens if they go bust?

  2. Eugen N says:

    Leaving outside the property obsession, I think that when the state pension is just £700 per month, and you only have DC funds, owning an unencumbered house in retirement is a necessity. Where the retiree could find another £600+ per month to pay the rent?

    One important way for some people to help kids onto the property market is DB transfers. I have do e a few recommendations myself, where I agreed the client could sacrifice some of the pension to help his children.

    As I would explain it to the FCA flexibility has many faces. You can reduce the access to DB transfer advice by raising barriers, but you cannot stop people spending or gifting money! They would use a more expensive tap and take an equity release mortgage very early! For people transferring, that is a contingency solution, if there are very poor market conditions or they live beyond age 92-95, for people willing to spend more, this has become a mainstream solution with £4 billion borrowed every year, at interest rates of 5% per annum, compounding.

    The last thing we need to do is to blame people that would like to help their children. It is natural for them to do it! I would do it for my son too, instead I plan to do it, and have my ISA special for this (he is 11 and does not know it!).

    Last, we shall not forget, children are also our insurance policy (or at least they were!). If you look, you will see many people looking after their parents, going part-time to do it etc. It is human nature!

  3. Julie Richards says:

    it is my parental right to help my children in whatever way I see fit. I appreciate I have the means to do so, unlike my own parents (who, btw like many others if researched properly, never had a company pension to fall back on – another great myth), so that is progress. When I am gone, all that I have is their’s anyway. It’s not “bonkers and, surprisingly, I find most people do understand that, having the freedom to make choices, they must live with the choices they make.

    • Chris Fox says:

      I am not sure it is that simple. I think what you mean is that, “having the freedom to make choices, we must _all_ live with the choices they have made”. A welfare state – something to celebrate of course – means that if someone depletes their funds and then, for example, needs care, there is a safety net. It may not be much, but we are all paying for it. So, at some point, we are all incentivised to discourage others from making poor decisions.

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