There’s a new bank in town and it’s a force to be reckoned with. It didn’t have a big launch and there’s been no expensive advertising campaign, but Bomad has already carved out a place as one of the country’s top 10 mortgage lenders.
Bank of Mum and Dad – parents helping their children get on the property ladder – will lend an astonishing total of £5 billion (€6.3 billion) this year, according to new research from Legal & General, providing finance for one in four of all mortgage transactions in the UK.
The average sum given by parents to their “generation rent” offspring is £17,500, or 7 per cent of purchase price. The L&G research, carried out in conjunction with the Centre for Economics and Business Research (Cebr), estimates that parents will contribute to more than 300,000 deposits in 2016.
The total value of homes backed by Bomad – which includes grandparents, other relatives and friends, but is more than 80 per cent made up by parents – is put at £77 billion.
As L&G says, with low or no interest rates, long or indefinite repayment periods and a personal service, it’s not surprising that Bomad is Britain’s best-loved financial institution. Without this parental lifeline, home ownership - already at its lowest in a generation - would remain a distant dream for many.
House price inflation
But the idea that everyone’s a winner with Bomad is not entirely true. The generosity of parents is helping to fuel the rampant house price inflation that has seen the average price of a property in the UK climb to more than £300,000, or £550,000-plus in London.
It’s also helping to perpetuate inequality. Parents from the wealthy baby boomer generation have seen huge increases in the value of their own homes and still enjoy decent pensions, so are well placed to provide funds.
But what of less well-off parents, who have never been able to buy their own homes, let alone find the cash to help their children? And what happens once the baby boomer generation’s money has been spent? Who will finance house purchases then?
There’s also the risk that, as house prices rise, parents risk over-extending themselves. L&G calculates that families helping with house purchases are on average contributing more than a third of their net household wealth towards that purchase; in London, it’s more than half.
At the moment, parents who have the cash are more than happy to help their children. But the more money they put towards their children’s deposits, the less they will have to fund their own retirements.
And sometimes the cash can come with strings attached. Legal firms have reported a big increase in the number of couples taking out prenuptial or cohabitation agreements, apparently demanded by parents to protect the deposits they have funded in the event the couple split up.
Biggest rebellion
Shareholders in another dozen FTSE 100 companies will gather for their agms this week, with several expected to deliver sharp rebukes to their boards over pay.
According to Simon Walker, director general of the Institute of Directors, the 2016 agm season "is shaping up to be the most raucous on record". He welcomes the fact that shareholders "are finding their voice".
The biggest rebellion so far was at Scottish engineering group Weir. Shareholders decisively rejected a "golden handcuffs" plan that would have seen directors awarded shares simply for staying with the company.
Weir’s defeat is significant in that the vote was on future pay policy and was thus binding, unlike the rebellions at BP and Smith & Nephew, which were on annual remuneration and only advisory. Without shareholder support, Weir has been forced to abandon its pay policy and must come up with a new plan that shareholders will approve.
Among the companies facing investors this week are Reckitt Benckiser, whose chief executive Rakesh Kapoor saw his salary virtually double to £23 million last year. Although Reckitt has performed well, shareholders are expected to register their disapproval of the huge increase in Kapoor's remuneration.
Also up before shareholders is Aviva, where directors will be mindful of the dramatic agm rebellion of 2012, which resulted in chief executive Andrew Moss being forced out of his job. The current boss, Mark Wilson, received £5.6 million last year, a figure one shareholder lobby group has branded "excessive."
Fiona Walsh is business editor of theguardian.com
