Bank of Mum and Dad’s ability to lend boosted by pension drawdowns worth £30 billion

One of the big trends in the property market over the last decade has been the growth in first time buyers who are having their purchase deposits underwritten by their parents and grandparents – the Bank of Mum and Dad or indeed, the Bank of Granny and Grandad!

One reason why parents and grandparents have the money to fund these property purchases are changes in pensions rules that allow them to make substantial withdrawals from their pensions in advance of their retirement.

Those aged 55 and above can access 25% of their savings tax-free and since 2015 they have also been able to access their entire funds*. A total of £30bn has been withdrawn from pension pots since the rules were changed, a large amount of which has gone towards helping children and grandchildren fund home purchases.

According to Legal & General, the Bank of Mum and Dad last year alone contributed £6.3bn towards property purchases.

Support from parents and grandparents has become increasingly necessary as rising property prices have pushed up the amount needed as a deposit. Property price inflation has pushed up the average financial contribution from parents and grandparents to £24,100 – up £6,000 this year.

Whilst the Bank of Mum and Dad is active across the whole of the UK, higher house prices in London mean it is particularly important in the Capital.

Stephen Ludlow, Chairman at ludlowthompson, says: “House price growth now means first time buyers need more help than a decade ago.”

“Many pension pots are now so big that they do more than just fund expenditure by retirees.”

“The recent rally in the UK stock market is going to act as a big fillip to pension funds enabling even more lending from the Bank of Mum and Dad, combined with lower mortgage rates and increased Government support makes now the perfect time for first time buyers to get on the property ladder.”

*Subject to tax at their tax band rate

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