NEWS
Hundreds of thousands need help to get on property ladder
04-10-2012
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The so called ‘bank of mum and dad’ has added £23 billion to the first time buyer housing market between 2008 and 2011, says a new report written and researched by the Centre for Economics and Business Research (Cebr), on behalf of lender HSBC.
Between 2008 and 2011, the total value of first time buyer transactions in the UK fell from £30.2 billion to £28.5 billion per year as economic turbulence suppressed mortgage lending. As a result many turned to their families for financial help in order to fill this funding gap. In the last year alone, £5.3 billion, or 18.7%, of all first time buyer transactions would never have taken place without family financing, according to the HSBC/Cebr report's estimates.
‘It's obvious that the bank of mum and dad has stepped in to plug the gap left by those banks and building societies who have constricted their lending in recent years, which means that family support has become an important element of the post crisis financing mix,’ said Peter Dockar, head of mortgages at HSBC.
‘However, at HSBC we have remained open for business and will continue to support first time buyers so that they have the opportunity to become homeowners in their own right. This year alone we have committed to lending at least £4 billion to first time buyers, more than we ever have before, to help them onto the property ladder with or without family financing. We will continue to offer market leading products for those with a smaller deposit,’ he added.
First time buyers agree that tough mortgage market conditions have prompted them to ask for help from their families. Approximately 85% of survey responses for those who secured family financing indicated that they turned to it because it was less risky, cheaper and was less stressful than some traditional mortgages. Only 15% of responses indicated that the main motivation was to buy a more desirable home in a better location.
The HSBC/Cebr report also considers how family financing's contribution to the first time buyer market is likely to change between 2012 and 2017. According to its predictions, only 11% of first time buyer transaction values will rely on family financing by 2017, compared with 18.7% in 2011. Despite this decline, family financing will still remain a hugely important contributor to the market, even in 2017. That year, £5.1 billion worth of purchases is likely to be impossible without family financing, roughly the same amount as in 2011.
‘Mortgage lending to British first time buyers fell off a cliff during the financial crisis. To some extent, families have moved in to fill the gap by providing gifts and loans to their first time buyer relatives. Families' contributions have been invaluable, helping thousands to get on to the housing ladder who would have missed out otherwise,’ said Daniel Solomon, Cebr economist and chief author of the report.
‘Families have really stepped up to supporting relatives who want to buy their first home. Now that so many first time buyers are having difficulty getting the mortgages they would like, gifts and loans from families have become crucial to their financing mix,’ he added.
