Bank of Mum and Dad handed out record £10bn to first-time buyers

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The Bank of Mum and Dad will help half of all first-time buyers this year, with the average contribution hitting £58,000.

Parents are expected to hand out a record £9.8bn in 2021 to their children, according to forecasts by estate agency Savills. The figure shot up because first-timers were shut out of borrowing by risk-averse lenders during the pandemic, while house prices soared.

The share of new entrants to the property market relying on family funding is at its highest since 2013, the same year the government's Help to Buy scheme was launched. However, dependency on parents remains some way off its peak in 2009, when 70pc of first-time buyers needed a boost in the aftermath of the financial crisis.

The contribution is at a record high, up from £6.1bn in 2020, as the Bank of Mum and Dad plugged a hole in finances left by a collapse in availability of low-deposit mortgages. Lending to borrowers with smaller deposits is seen as riskier and hundreds of these deals were pulled when the pandemic hit, leaving first-time buyers locked out of the market.

Frances Clacy, of 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 get on the ladder without assistance."

In early March 2020, there were 391 mortgages requiring a 5pc deposit, according to data firm Moneyfacts. When the housing market closed later that month, this fell to almost zero, and one year later there were still only five deals available. Availability has crept back up since the Government introduced its 95pc mortgage guarantee scheme in April.

This was compounded by a soaring property market. House prices rose at the fastest pace in more than 14 years in September, to a new record average of £267,587, according to lender Halifax.

An acute shortage of homes for sale also meant first-time buyers were pitted against homemovers and investors, who were boosted this year by the stamp duty holiday. Usually first-timers get a stamp duty exemption but this was superseded by the tax break which helped the entire market, eclipsing young buyers' advantage.

Savills estimated the Bank of Mum and Dad has paid almost £54bn to get their children on the property ladder over the past decade, helping 1.4 million buyers.

Aneisha Beveridge, of Hamptons, an estate agency, said the housing market had been driven by older homeowners this year, many of whom released equity when moving which had been given to children.

She said: "The role of parents supporting children onto the housing ladder has increased significantly. We have seen this when parents maybe move home, but also a growing popularity surrounding equity release. More often than not the equity released from a property is passed on to children for their own purchase."

Contributions by the Bank of Mum and Dad are predicted to peak this year, with Savills expecting family support to drop to £7.9bn in 2022 as lenders increasingly relax deposit requirements as the economy recovers.

The number of 5pc deposit mortgages on the market has now rebounded to 225 deals, according to Moneyfacts, although this is below pre-pandemic levels of 391 in 2019.

But Ms Clacy warned family support would remain a "vital" source of funding. "While we expect lending for borrowers with smaller deposits to continue to be available, slowly rising interest rates will act as a brake on affordability.

"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," she said.

The Help to Buy scheme, which offers a way to buy using a 5pc deposit, is scheduled to end in 2023, creating a potential black hole for first-time buyers. It has restricted borrowers to new-builds, which has posed a problem for some buyers as newly-built properties are typically more expensive than second-hand homes.

Detached houses now make up the largest share of new-builds in the UK, according to the National House Building Council. In the third quarter of this year 36pc of newly registered homes were detached, the highest level since 2002.

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