by Mark Johnston
The ‘Bank of Mum and Dad’ to the Rescue!
The situation for first time buyers has been extremely difficult especially since the banking crisis first took hold over four years ago.
Before the banking crisis, most people who wanted a mortgage could get one with a 100 per cent loan to value (LTV) ratio, meaning they did not have to save up much of a deposit.
Chris Craig, Sales Director at Orbit Homes said: “In the current climate many young buyers struggle to save a substantial deposit and need financial help to get onto the property ladder, more often than not this comes from the ‘bank of mum and dad.
For those who do not want to rent and line the pockets of a landlord, it appears that the ‘bank of mum and dad’ may be their only route to home ownership.
A survey has revealed that around 8 out of 10 first time buyers now rely on some form of help from their parents when buying a home.
Current figures have revealed that in 2008, as the credit crunch began, parents poured a total of £4 billion in to helping their offspring to buy a property, in the form of gifts, loans and sharing the mortgage, but in 2011 that sum had risen to around £5.3 billion.
A recent report has shown that between 2008 and 2011 the Bank of Mum and Dad has helped to finance over 100,000 first-time buyers.
The report, written and researched by the Centre for Economics and Business Research (CEBR), on behalf of HSBC, revealed that 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.
Current research by findaproperty.com also found that first-time buyers need more support from the so called Bank of Mum and Dad than they originally had expected.
Peter Dockar, head of mortgages at HSBC, said: “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.
Daniel Solomon, Centre for Economic and Business Research (CEBR) economist and chief author of the report, stated that “Families’ contributions have been invaluable, helping thousands to get on the housing ladder who would have missed out otherwise.”
It appears then that almost a fifth of first time buyer sales last year would not have happened with out parental help of some kind.
The findings come just days after Deputy Prime Minister Nick Clegg suggested parents may be able to unlock their pensions to help their children fund a property.
However, according to predictions by HSBC, only 11.0 per cent of first time buyer transaction values will rely on family financing by 2017, compared with 18.7 per cent in 2011.
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