Legal & General: 24% of homebuyers are more reliant on ‘bank of mum and dad’ post-pandemic
Nearly one in four (23%) housing transactions will be backed by loans from ‘the bank of mum and dad’ (BoMaD), in 2020, with 24% of borrowers finding themselves more reliant on financial support from family and friends, according to research by Legal & General.
Mirroring the impact of the lockdown on the UK housing market, families will lend just £3.5bn to loved ones this year – almost halving the £6.3bn parents, grandparents, other family and friends lent in 2019.
The bank of mum and dad will also fund 85,000 fewer home purchases than in 2019.
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, family lending will still be involved in 175,000 housing transactions this year, within an estimated transaction value of £50.3bn.
Last year, 19% of all home purchases were funded wholly or partly by the bank of mum and dad.
Of those who have recently received support for a purchase from family and friends, 65% said it would have been ‘unlikely’ without help.
One in five (19%) said they would have had to delay their purchase by more than five years without support, and a further 14% said they never would have been able to buy.
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.
The research found that this year, family members and friends will lend an average of £20,000 towards deposits.
As a result of the COVID-19 crisis, 15% of BoMaD ‘lenders’ are now planning to give more than they would have done before the pandemic.
Of those saying that coronavirus has changed the amount of money they are willing to give, almost one in five (18%) want to give at least 50% more.
Homebuyers in London are set to receive the most, with the average loan standing at £25,800.
This was followed by the East Midlands (£16,000 in 2019, £24,100 in 2020), while family and friends in the North East and Yorkshire are contributing the least (£13,800).
Almost two-fifths (39%) of lenders were found to use cash savings to provide financial assistance, while 27% used inherited funds to help their children or grandchildren to buy.
Others have drawn money from ISAs (22%) and investments (16%), or even downsizing (12%) to unlock cash.
A third of people (33%) looking to buy in the next five years said they plan on getting financial help from family or friends in order to do so.
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.”
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.”