Nearly one in four home purchases this year will be backed by the “bank of mum and dad” – up from fewer than one in five in 2019 – as buyers struggle with the economic fallout from the Covid-19 crisis.
Financial help provided by the bank of mum and dad, encompassing parents, grandparents, other family and friends, will be a driving force behind the recovery of Britain’s housing market. Those able to assist will lend an average of £20,000 towards a deposit on a home, said researchers from insurer Legal & General (L&G) and economics consultancy Cebr.
Not only are many of them potentially facing an uncertain economic future, but mortgage lenders – worried about house prices and borrowers possibly falling into negative equity – have been withdrawing their low-deposit home loans. These are the deals, often requiring a deposit of just 10%, that many young people rely on to take their first step on the housing ladder.
According to the L&G study, 19% of all home purchases in 2019 were funded partly or wholly by friends and family. In 2020 that figure will rise to 23%, it said.
Mirroring the impact of the crisis on the UK housing market, which effectively had to shut up shop during the lockdown, it is predicted that the bank of mum and dad will lend around £3.5bn to loved ones this year – down substantially on the £6.3bn that family and friends lent in 2019.
Despite that, parents, other family and friends will still provide financial help towards about 175,000 housing transactions this year with an estimated total value of £50bn, according to the researchers.
Nigel Wilson, the chief executive of Legal & General, said that while the generosity of the bank of mum and dad was helping thousands to realise their home ownership goals, a generation of hopeful buyers not lucky enough to have access to this assistance “could find themselves locked out of the housing market”.
However, the bank of mum and dad is also facing its own challenges, with claims from mortgage commentators that it is being penalised by some lenders.
In July, Nationwide building society said it was boosting its support for first-time buyers by increasing its mortgage lending limit to 90% loan-to-value (LTV). At the same time the lender has clamped down on financial help from parents and others. Nationwide said that for all lending above 85%, it would not allow a first-time buyer to rely on a deposit that had been entirely gifted by family.
It has set the maximum permitted gift at 25% of the deposit amount. This could dramatically impact the amount of help some relatives are able to provide, particularly in areas such as London.