The ‘Bank of Mum and Dad’ (BoMaD) will be a driving force behind the recovery of the UK’s housing market in the wake of the COVID-19 crisis, according to new research from Legal & General and Cebr.

L&G revealed that almost one in four housing transactions (23%) will be backed by the BoMaD in 2020, with 24% of borrowers now more reliant on financial support from family and friends.

The research indicated that the BoMaD will lend just £3.5bn to loved ones this year – almost halving the £6.3bn that parents, grandparents, other family and friends lent in 2019, however. It will also fund 85,000 fewer home purchases. 

L&G suggested the figures reflect the effective closure of the housing market under the COVID-19 lockdown and a wider collapse in purchases reported by HMRC, with total property transactions similarly falling by nearly half in Q2 2020. Despite this, the BoMaD will still be involved in 175,000 housing transactions this year, with an estimated transaction value of £50.3bn.

“If ‘Build, Build, Build’ is how we will recover from COVID-19, then the BoMaD will be centre stage once more,” commented L&G CEO, Nigel Wilson. “Generous parents, grandparents, family members and friends are gifting thousands towards deposits, outpacing even stamp duty cuts as a driver of renewed housing market activity.

“For years, buyers have been faced with a limited supply of affordable homes, a challenge which is now being compounded by COVID-19. Not only are buyers facing an uncertain economic future, but changes by lenders in the wake of the pandemic have restricted the low deposit mortgage options on which many young people rely to make their first step.

“While the BoMaD is leaning in to help those lucky enough to have its backing, a generation of hopeful buyers without the support of BoMaD could find themselves locked out of the housing market.”

Despite the stamp duty holiday for purchases under £500,000, the research showed that just 8% of potential purchasers said they are less reliant on family or friends for financial support as a result of the policy measures introduced to mitigate coronavirus. Only 12% have brought forward their plans to buy since the start of the pandemic. 

L&G’s research also revealed that COVID-19 has encouraged BoMaD lenders to be “more generous” than usual, with family members and friends lending an average of £20,000 towards deposits. As a result of the crisis, 15% of BoMaD lenders are now planning to give more than they would have done before the pandemic to help loved ones.
 
Commenting on the research, Key CEO, Will Hale, said: “While the BoMaD is happy to continue to lend, the appetite of traditional banks and building societies has reduced with LTVs being tightened and some lenders concerned about borrowers who rely on their parents for help with deposits or who act as guarantors.

“This is likely to put more pressure on BoMAD at a time when this group have their own financial issues to deal with, such as the pressures of funding their retirement and factoring in any need for long-term care.
 
“That said, the basic truth is that older generations have substantial property wealth with the over-65s alone owning homes worth more than £1.1trn, and they are often happy to help younger generations.”

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