A new report written and researched by the Centre for Economics and Business Research (Cebr), on behalf of HSBC, reveals that the ‘bank of mum and dad’ has helped to finance over 100,000 first time buyer (FTB) borrowers between 2008 and 2011. This ‘family financing’ from the bank of mum and dad has also made a significant contribution to the FTB market during this period, enabling approximately £23 billion worth of FTB purchases, or £5.6 billion a year.
Between 2008 and 2011, the total value of FTB 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 FTBs 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 per cent, of all FTB transactions would never have taken place without family financing, according to the HSBC/Cebr report’s estimates.
FTBs agree that tough mortgage market conditions have prompted them to ask for help from their families. Approximately 85% of survey responses for those FTBs 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 FTB’s 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 FTB market is likely to change between 2012 and 2017. According to its predictions, only 11.0% of FTB 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 FTB market, even in 2017. That year, £5.1 billion worth of FTB purchases is likely to be impossible without family financing – roughly the same amount as in 2011.
Daniel Solomon, Cebr economist and chief author of the report, says:
“Mortgage lending to British FTBs fell off a cliff during the financial crisis. To some extent, families have moved in to fill the gap – 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.
“Families have really stepped up to the plate – 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.”