The Bank of Mum and Dad will be key to the recovery of Britain’s housing market as buyers struggle with the economic impact of the Covid-19 crisis, according to new research from Legal & General and Cebr.
23% of housing transactions will be backed by ‘BoMaD’ in 2020, with 24% of borrowers now more reliant on financial support from family and friends.
Mirroring the impact of the lockdown on the UK housing market, the Bank of Mum and Dad will lend just £3.5bn to loved ones this year – almost halving the £6.3bn parents, grandparents, other family and friends lent in 2019. It will also fund 85,000 fewer home purchases.
The figures reflect the effective closure of the housing market under the Covid-19 induced lockdown and a wider collapse in purchases reported by HMRC, with total property transactions similarly falling by nearly half in Q2 2020.
Despite this, the Bank of Mum and Dad will still be involved in 175,000 housing transactions, within an estimated transaction value of £50.3bn, this year.
Nigel Wilson, CEO at Legal & General, said: “If ‘Build, Build, Build’ is how we will recover from Covid-19, then the Bank of Mum and Dad will be centre stage once more. Generous parents, grandparents, family members and friends are gifting thousands towards deposits, with BoMaD outpacing even Stamp Duty cuts as a driver of renewed housing market activity.
“For years buyers have been faced with a limited supply of affordable homes. A challenge which is now being compounded by Covid-19. Not only are buyers facing an uncertain economic future, but changes by lenders in the wake of the pandemic have restricted the low-deposit mortgage options on which many young people rely to make their first step. While the Bank of Mum and Dad is leaning in to help those lucky enough to have its backing, a generation of hopeful buyers without the support of BoMaD could find themselves locked out of the housing market.”
Last year, 19% of all home purchases were funded wholly or partly by the Bank of Mum and Dad. In 2020 that figure will rise to nearly a quarter (23%). Of those who’ve bought recently and received support from family and friends, 65% said it would have been ‘unlikely’ without help from BoMaD. 19% expect they would have had to delay their purchase by more than five years without BoMaD support, and a further 14% said they never would have been able to buy without the help of family or friends.
The figures come as buyers face the economic implications of the pandemic and a restriction in the choice of high loan to value (LTV) mortgages on which many buyers (especially first-time buyers) rely. Recent data from Moneyfacts has shown a dramatic fall in the number of 90% LTV mortgages on the market which allow people to buy with just a 10% deposit.
Despite the Stamp Duty holiday for purchases under £500,000, just 8% of would-be purchasers say they are less reliant on family or friends for financial support as a result of the policy measures introduced to mitigate the effects of the coronavirus crisis. Only 12% have brought forward their plans to buy since the start of the pandemic.
Legal & General’s research shows that the coronavirus crisis has encouraged BoMaD lenders to be even more generous than usual. This year, family members and friends will lend an average of £20,000 towards deposits. As a result of the crisis, 15% of BoMaD ‘lenders’ are now planning to give more than they would have done before the pandemic to help their loved ones. Of those saying that coronavirus has changed the amount of money they are willing to give, 18% want to give at least 50% more.
Homebuyers in London are set to receive the most, with the average BoMaD ‘loan’ standing at £25,800. This was followed by the East Midlands, where lenders have given a significant boost to the average BoMaD contribution this year, from £16,000 in 2019 to £24,100 in 2020. Family and friends in the North East and Yorkshire are contributing the least, but on average are still lending a generous £13,800 to help loved ones buy a home.
Cash remains king for BoMaD, with 39% of lenders using cash savings to provide financial assistance. However, the data also shows that for many people inheritance is skipping a generation and acting as an intergenerational gift, with more than one in four (27%) lenders using inherited funds to help their children or grandchildren to buy. Others are drawing money from ISAs (22%) and investments (16%), or even downsizing (12%) to unlock cash.
Wilson added: “Whilst the generosity of the Bank of Mum and Dad is undoubtedly helping hundreds of thousands of loved ones to realise their homeownership goals every year, it remains a symptom of our broken housing market. Our reliance on BoMaD is unfair and unsustainable, and it’s putting retirements at risk as parents and grandparents try to help their kids to have a similar standard of living as they enjoyed.
“In order to make a meaningful difference and to create a fair and long-lasting market dynamic, we need to become a housebuilding nation once again. Thousands of new and affordable properties, across a variety of tenures, are needed to give everyone a fair chance at homeownership. At Legal & General we are playing an active role in delivering this, investing in infrastructure and jobs, as well as delivering housing for all ages, social groups and tenures. The housing market has long been at the heart of our nation’s economy, and now more than ever, we need to invest in this sector in sustainable way if we really want to support the UK’s wider return to growth.”
Will Hale, CEO at Key, added: “Legal & General’s research shows The Bank of Mum and Dad remains a major lender in the UK housing market – despite the uncertainty of the continuing coronavirus pandemic – backing nearly one in four housing transactions this year as borrowers become even more reliant on financial support from family.
“The Stamp Duty holiday on all purchases up to £500,000 which lasts until the end of March 2021 is likely to boost demand at BoMaD even further for the rest of the year and – against the back drop of potential economic uncertainty – long-term demand looks sure to stay strong.
“While BoMaD is happy to continue to lend, the appetite of traditional banks and building societies has reduced with LTVs being tightened and some lenders concerned about borrowers who rely on their parents for help with deposits or who act as guarantors. This is likely to put more pressure on BoMAD at a time when this group have their own financial issues to deal with such as the pressures of funding their retirement and factoring in any need for long-term care.
“That said, the basic truth is that older generations have substantial property wealth with the over-65s alone owning homes worth more than £1.1 trillion and they are often happy to help younger generations. Equity release is one option they can consider and we’ve found that while customers are cautious and recognise the need to balance long and short term considerations, they are keen to help children and grandchildren where they can. Specialist advice is critical in this market and in the first half of the year we saw almost a quarter of equity release customers using some of their funds to gift money to family.”