Bank of Mum & Dad set to lend £25bn to children over the next three years

Research over recent years has regularly pointed to the Bank of Mum & Dad being one of the UK’s biggest lenders, providing billions to their offspring to help them take their first steps on the ladder.

And now new research from Savills has outlined the extent to which this is still the case, with gifts and loans from the Bank of Mum & Dad set to total £25 billion over the next three years (2022–2024).

This, the property group says, will support nearly half of all first-time buyer transactions.

Its analysis found that, in the three years to 2024, almost half a million first-time buyers (470,000), equating to almost one in two first-time buyers, will get financial help from a parent or other family member. This comes as rising house prices and the cost-of-living crisis put more pressure than ever on those saving for a deposit.

According to the Nationwide House Price Index released on Monday, house prices rose 11.0% year-on-year in July, with prices having now risen for 12 consecutive months (0.1% in July).

This has helped to keep 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?

The Savills research says lending is anticipated to have peaked in 2021, when 198,000 first-time buyers required family assistance to get their mortgage. This equates to around half (49%) of all mortgaged first-time buyers, up from 131,000 in 2020 and 136,000 in 2019.

It found that the Bank of Mum and Dad contributed a total of £10.7 billion towards the purchase of these homes, more than double was the case in 2019 (115% higher). This came as a result of a more stringent mortgage market since the start of the pandemic, which particularly affected higher loan-to-value (LTV) lending, something many first-time buyers who typically have smaller deposits rely on.

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 £8.4 billion.”

She added: “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).”

As well as the Bank of Mum and Dad, the research found that Help to Buy supported 40,000 loans to first-time buyers, providing £2.9 billion of financial assistance. This brings the total support received by first-time buyers to over £13.6 billion in 2021.

The scheme will, though, finally end in March 2023, which Savills says will remove ‘necessary support’ which tens of thousands of aspiring homeowners currently rely on. 

“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,” McDonald continued.

“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.”

She concluded: “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.”