News

Bank of Mum and Dad to drive property market recovery after COVID-19

Sep 1st 2020

Nearly one in four housing transactions (23%) will be backed by Bank of Mum and Dad (BoMaD) in 2020, with a quarter (24%) of borrowers now more reliant on financial support from family and friends.

Mirroring the impact of the lockdown on the UK housing market, BoMaD will lend just £3.5bn to loved ones this year – almost halving the £6.3bn parents, grandparents, other family and friends lent in 2019. It will also fund 85,000 fewer home purchases.

The new research from Legal & General and Cebr (Centre for Economic & Business Research) reflects the effective closure of the housing market under the COVID-19 induced lockdown. It also indicates a wider collapse in purchases reported by HMRC, with total property transactions similarly falling by nearly half in Q2 2020.

Recovery

Despite this, parents will still be involved in 175,000 housing transactions, within an estimated transaction value of £50.3bn, this year. With the housing market now re-opened, parents ready to step up and be a key element of the housing sector’s recovery, as thousands of buyers press ahead with their plans to buy after the lockdown.

The figures come as buyers face the economic implications of the pandemic and a restriction in the choice of high loan-to-value (LTV) mortgages on which many buyers (especially first-time buyers) rely. Recent data from Moneyfacts has shown a dramatic fall in the number of 90% LTV mortgages on the market which allow people to buy with just a 10% deposit.

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.

BoMaD leans in

Legal & General’s research shows that the coronavirus crisis has encouraged BoMaD lenders to be even more generous than usual. Homebuyers in London are set to receive the most, with the average BoMaD ‘loan’ standing at £25,800.

Cash remains king for BoMaD, with 39% of lenders using cash savings to provide financial assistance. However, the data also shows that for many people inheritance is skipping a generation and acting as an intergenerational gift, with more than one in four (27%) lenders using inherited funds to help their children or grandchildren to buy. Others are drawing money from ISAs (22%) and investments (16%), or even downsizing (12%) to unlock cash.

The Bank of Mum and Dad might be an imperfect solution to an intergenerational problem, but it has also become an established and vital part of the housing landscape. The research also reveals that a third of people (33%) looking to buy in the next five years plan on getting financial help from family or friends in order to do so.