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Bank of Mum and Dad lending more to first-time buyers?

Journalist: Rachel Mortimer, The Times

ended 13. January 2023

Data from Savills shows the Bank of Mum and Dad is a growing source of funds for first-time buyers, despite parents juggling a squeeze on their own finances. 

Why might buyers increasingly be relying on their parents? Are they making up a shortfall because of higher interest rates and tighter affordability tests? 

Any anecdotes/examples of clients relying more on their parents than originally planned would be very welcome. 

Thank you! 

7 responses from the Newspage community

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Justin Moy
Managing Director at EHF Mortgages
With property prices tripling over the last 20yrs, so has the deposit required. Buying a home for £100k may have needed a £5 or 10k deposit, but that same home is now priced at £300k, which will need a £15-30k deposit minimum - and that's before we look at the other costs of buying and maintaining a home. In the same timescale, income hasn't increased by the same factor, so parents have had to give even more towards the deposit, and many have borrowed to do that. For example, in 1995 I bought a flat in Chelmsford for £53k, on an income of £15kpa, with a £3k deposit. That same flat is around £275k to buy in 2023, and for the same job role that salary is now £26k. That would get a mortgage of around £115k now, so a deposit of £160k is required. That's why Mum & Dad is one of the largest lenders in the UK if they were a bank!
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Mike Staton
Director at Staton Mortgages
Gifted deposits from parents are not a new thing, this has always been popular among first-time buyers. We are seeing an increase in parents stepping in after the process has started to bridge the gap on the current shortfall we are seeing in today's affordability calculators, I have written a case this week where the client's affordability would have easily met their purchase 18 months ago but due to the cost of living and tighter lender affordability, the client has a shortfall of £16k, luckily their parents are in a position to be able to step in and help. Unfortunately, not everyone will find themselves in such a lucky position. Some lenders will allow parents to put a 2nd charge onto the property, giving parents more protection over the deposit should anything happen such as a marital split. This is becoming more popular.
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Graham Cox
Director at Bridging Hub
Many of our clients are using gifted deposits from their parents. It's just another symptom of an overpriced housing market and a dysfunctional economy where first-time buyers are unable to save enough to get on the housing ladder.

The good news is house prices are falling and in my opinion, are likely to drop 20-30% peak to trough over the next year or two. That's what first-time buyers actually need, lower prices, not Help to buy or Mortgage Guarantee Schemes, which actually act against their interests by propping up property values.
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Michael Webb
Managing Director at Mortgage Republic
We are seeing the bank of mum and dad step up and provide additional funds to their first-time buyer children. This is for two main reasons. Firstly, they are still keen to get their children on the property ladder and see this as a good use of their funds against holding the capital in savings accounts being eroded by inflation. Secondly, to reduce the monthly costs due to increased interest rates, by reducing the level of borrowing required.

We have recently had a situation where a mortgage offer expired due to the new build property not being ready to complete. The buyer lost a rate in the 2%s and had to proceed on a rate in the 5%s. To reduce the impact of this uplift their parents input further deposit reducing their borrowing from 85% to 75% allowing them to continue to buy the property- which has now been completed.
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Gary Boakes
Director at Verve Financial
It has been rare not to meet FTBs that were not having help from family especially mum and dad with that ranging from £5,000 to £120,000 last year. With the average income to house price peaking at 7 times last year it is not a suprise that family is looking to help their children and this is set to continue unless that figure significantly decreases.
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Peter Stimson
Head of Product at MPowered Mortgages
Yes, we can expect more first-time buyers to rely on the bank of mum and dad given higher mortgage rates if the option is there. Not all mums and dads will be able to support them as they will have their own struggles, especially with the cost of living increasing. However, there is a silver lining for FTBs. Those looking to buy in the next few years can take advantage of the exemption of stamp duty on the first £250,000 of a property but be aware this is being scrapped in 2025. Also, the increasing financial pressure on landlords (higher mortgage rates and reduced tax breaks) means we will see more selling up and this will drive down the price of first-time buyer-esque properties further (Flats in urban areas) making them more affordable.
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Amit Patel
Adviser at Trinity Finance
The bank of mum and dad what would we do without them, eh?

They are one of the largest lenders in the UK for those fortunate enough to have parents that can provide them with a deposit and this is now the norm for nearly all mortgage applications.

With sky-high property prices and a lack of housing stock, it's a real struggle for first-time buyers to get onto the property ladder. For years successive Governments have not delivered on their manifesto pledge to build more affordable homes and by affordable I mean for the average person.

With low wages for the majority of aspiring buyers, it's a real struggle to get onto the property ladder when you take into consideration, high inflation, cost of living and more stringent affordability checks.