Gifts and loans from the Bank of Mum & Dad (BOMAD) will total £25 billion over the next three years (2022 – 2024), supporting almost half of all first time buyer transactions, according to new analysis from property group Savills.
In the three years to 2024, nearly half a million first time buyers (470,000), or almost one in two first time buyers, will get financial help from a parent or other family member, says Savills, as rising house prices put the pressure on those saving for a deposit.
According to the latest Nationwide figures, house prices rose 11.0% on the year in July. Prices have now risen for 12 consecutive months (0.1% in July), which has kept annual price growth in double digits for the ninth month in a row, leaving many first-time buyers struggling to ensure their savings keep pace.
Has Bank of Mum & Dad lending peaked?
Lending is expected to have peaked in 2021 when 198,000 first time buyers had family assistance in getting their mortgage, around 49% of all mortgaged first time buyers, up from 131,000 in 2020 and 136,000 in 2019.
The Bank of Mum and Dad contributed a total of £10.7 billion towards the purchase of these homes – more than double 2019 (115% higher) – as a result of a more stringent mortgage market since the start of the pandemic which particularly affected higher LTV lending.
Frances McDonald, research analyst at Savills said:
“Help from the Bank of Mum and Dad peaked last year as lenders exercised rate increases across high LTV loans. This meant more buyers looking to take their first step onto the housing ladder needed to take advantage of any family support to try and secure a deal at a lower rate.
“However, as ratios normalise over the course of this year, we can expect family assistance to fall back to levels seen prior to 2021 – at around £8.4bn.
“We are also anticipating that first time buyer transactions will fall back in 2022, in line with overall transactions, and so the proportion who are receiving help from family (43%) will remain above pre-pandemic levels (of 39% in 2019 and 41% in 2018.”
Numbers of first time buyers receiving family assistance and amount of assistance given to get on the housing ladder
Help to Buy also supported 40,000 loans to first time buyers, providing £2.9bn of financial assistance, bringing the total support received by first time buyers to more than £13.6bn in 2021.
However, this will end in March 2023, removing necessary support which tens of thousands of aspiring homeowners currently rely on.
Savills’ Frances McDonald. continued:
“Despite strong levels of activity and price growth across the board, lenders are continuing to favour less risky, lower loan to value mortgage lending, which means it remains difficult for first time buyers to get on the ladder.
“Those who have the option to turn to family members for help and are in secure employment will find it much easier to get onto the housing ladder.
“This means that the market will be increasingly confined to the highest earners and those who have received significant support.”
“Despite higher interest rates, the main barrier to home ownership is still buyers’ ability to save for a deposit.
“This is particularly true with the rising cost of living and so the role of the bank of Mum and Dad will remain a key avenue of support to those able to access it.
“This will be all the more vital from March 2023 when Help to Buy closes, with more first time buyers looking to plug a hole in their deposit gap.”