The Bank of Mum and Dad will be a driving force behind the recovery of Britain’s housing market as buyers struggle with the economic impact of the COVID-19 crisis, research from Legal & General and Cebr claims.
Nearly one in four housing transactions (23%) will be backed by ‘BoMaD’ in 2020, with a quarter (24%) of borrowers now more reliant on financial support from family and friends.
A third (33%) of those likely to buy a house in the next five years said that this will be done using money from family and friends.
Nigel Wilson, chief executive 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.
Will Hale, chief executive at Key, said: “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.”
This post has originally been featured in Property Wire.