Analysis by property group Savills shows that gifts and loans from the Bank of Mum & Dad (BOMAD) will hit a new high in 2021, supporting almost half of all first time home buyer transactions as rising house prices increase the pressure on those saving for a deposit.
Total BOMAD contributions are expected to total £9.8 billion this year, Savills says, contributing more than three times the value of Help to Buy loans (£3.0bn) granted in 2020 and an average of £58,074 per supported purchase.
These funds will help 169,000 first time buyers onto the housing ladder, equivalent to 49% of all first time buyer transactions.
The number of first time buyers fell back in 2020, to 304,000, their lowest since 2015, as lockdown and employment uncertainty eroded activity. Still, BOMAD contributions totalled £6.1 billion, up from £5.0 billion in 2019, as tighter lending criteria put additional pressure on aspiring homeowners.
Over the past 10 years, BOMAD has subsidised first time buyer activity to the tune of £53.9 billion, helping almost 1.4 million buyers access their first home.
This year is expected to represent a peak of family support, with total contributions projected to fall slightly in 2022, as loan to value ratios begin to normalise. Savills has based its assumptions on loan to value ratios for first time buyers recovering to 76% by the end of 2021 and to 78% by the end of 2023, theoretically reducing deposit requirements.
But, as Help to Buy is withdrawn completely from March 2023 onwards, it is likely that increasing numbers of first time buyers will need assistance.
As such, while BOMAD lending is projected to slip back to £7.9 billion in 2022, supporting around 42% of purchases, it is then expected to bounce back to £8.6 billion and 47% of purchases in 2023.
“As we are all aware the housing market has been exceptionally strong this year, however, lenders are erring on the side of caution, favouring lower loan to value lending which has made it even harder for first time buyers to get on the ladder without external help,” says Marc Dueck, Director of ME Financial Services.
“Sadly, looking forward the outlook is even more challenging with slowly rising interest rates, the rising cost of living, increased national insurance and the potential for a lower threshold for student loan repayments will make deposit saving for future buyers even more challenging. With that in mind, if people are fortunate enough to have access to family financial support, it will be a vital source of funding in a post Help to Buy world”
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