Research by estate agent Savills has found that the bank of mum and dad will finance nearly half of all first-time buyer purchases this year.
The study found that total contributions are likely to reach £9.8 billion, which is equal to an average of just over £58,000 each for an estimated 169,000 first-time purchases. This equates to 12.5% of the total money lent to first-time buyers.
With the substantial recent increase in house prices, many first-time buyers would struggle to step onto the property ladder without parental help.
Mum and dad contributions for 2019 and 2020 were estimated at £5 billion and £6.1 billion respectively. Savills calculate that this related to 39% and 43% of first-time buyer purchases.
Borrowing from the bank of mum and dad is expected to drop in 2022, but it will still be a substantial source of support at an estimated £7.9 billion. The figure for 2023 is estimated at £8.6 billion. In March 2023, assistance from the Help to Buy scheme will end, meaning more first-time buyers may need parental assistance.
Savills’ figures are based on an assumption that the amount required for a deposit will reduce. In 2020, lenders removed a number of low-deposit mortgage offers, however these are now returning.
Total bank of mum and dad lending for the past decade is an estimated £53.9 billion, helping some 14 million first-time buyers to buy a home.
Frances Clacy, residential research analyst at Savills, said: “Despite strong levels of activity and price growth across the housing markets, lenders have tended to favour less risky, lower loan to value lending, making it harder for new buyers to access the market for the first time without assistance.
“While we expect lending at a higher loan to value ratio to continue to be available, slowly rising interest rates will act as a brake on affordability, while rising costs of living, increased national insurance and the prospect of a lower threshold for student loan repayments will make saving for a deposit all the more challenging.
“As such, for those fortunate enough to be able to access it, family support will continue to be a vital source of funding for first-time buyers, particularly in a post Help to Buy environment.”
House price rises
House prices are currently 13% higher than before the pandemic, with average UK house prices standing at £248,857 in August 2021, up 11% on August 2020.
As well as a reduction in Stamp Duty, house prices have been boosted by low interest rates, higher levels of household savings and people’s desire to move after lockdowns and increased home working. With a range of low interest-rate deals and increasing low-deposit requirements, the housing market looks set to stay active for some time to come.
Lending to children
There are a number of legal issues to consider in lending substantial sums of money to children to purchase a property and it is important to take legal advice before doing so.
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