LONDON (BLOOMBERG) - Record home values in London meant Sheila Shribman had to help her three children, who work as lawyers and a doctor, with a down payment to afford their apartments.
"There is no doubt that they would not have been able to do this without our assistance," the retired doctor said. "Affordable housing is in short supply, renting is very expensive and buying is out of most young people's reach now."
Parents in the UK capital are now giving half of their net wealth, excluding real estate assets, to their children as gifts or loans to be used as deposits for properties, according to Legal & General Group. That means the so-called Bank of Mom and Dad is now facing a funding crisis as they put their own finances for the future in jeopardy.
"Families clearly cannot continue to use all of their net wealth to help their offspring onto the housing ladder without putting their own financial stability at risk," L&G and the Centre for Economics and Business Research said in a report on Tuesday (May 3). "There is now an affordability issue on both sides of the fence, for the children and their parents," L&G said.
First-time home buyers spent £395,000 (S$777,500) on average in the fourth quarter on a London home, almost £100,000 more than five years ago, according to data compiled by the Office for National Statistics. The typical mortgage of £281,000 is the equivalent of the average London home price in 2005, the data shows.
Residential property prices in London rose 9.7 per cent in the 12 months through February to £524,000 as landlords rushed to buy homes ahead of a rise in stamp duty sales tax. The median gross salary for a full-time worker in London was about £34,320 last year, unchanged from the previous year, preliminary government data shows.
Finance Minister George Osborne raised the stamp duty tax for landlords and second home owners by 3 percentage points in April to help first-time buyers compete for properties. Lending to landlords in the UK rose 61 per cent in February from a year earlier compared with a 21 per cent increase to debut home buyers, according to data compiled by the Council of Mortgage Lenders.
With the UK benchmark interest rate at a record-low 0.5 per cent for more than seven years, Bank of England Deputy Governor Jon Cunliffe warned last week that lending to owner- occupiers at high loan-to-income ratios remains significant".
Barclays started offering mortgages on Wednesday with an income multiple of 5.5 times earnings for purchasers who receive a 10 per cent down payment from a relative or guardian. Buyers will rely on £574 million offered by family and friends to support home purchases in the UK capital this year, according to the Legal & General report.
Ms Shribman says her children realise they're lucky that she and her husband, also a retired doctor, were able to contribute.
"We know we are in the minority and can see how very difficult it is for families to help," she said. "They all know how fortunate they are that we could do this."