According to a report from Legal & General the Bank of Mum and Dad (Bomad) is set to be the driving force behind the recovery of the housing market, which was hit badly by the effects of the Covid-19 lockdown.
According to a survey by Legal & General, nearly one in four (23%) housing transactions in 2020 will be ‘backed’ by the so-called Bank of Mum and Dad compared to 19% in 2019.
The study found a quarter (24%) of borrowers were now more reliant on financial support from family and friends because of the impact of lockdown and the Covid-19 crisis.
Indeed, said Legal & General, of those who had purchased a property recently and received support from family and friends, 65% said it would have been ‘unlikely’ without help from the Bank of Mum and Dad.
Preventing delays
One in five (19%) expect they would have had to delay their purchase by more than five years without this vital financial support from loved ones. Meanwhile, a further 14% said they never would have been able to buy without the help of family or friends.
Nigel Wilson, CEO of Legal & General, said: “If ‘Build, Build, Build’ is how we will recover from Covid-19, then the Bank of Mum and Dad (Bomad) will be centre stage once more.”
He added: “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.”
Broken housing market
But he was concerned the reliance on the Bank of Mum and Dad was creating an imbalance. He went on to say: “While the Bank of Mum and Dad 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.”
Indeed, Wilson is concerned Bomad remains a symptom of our broken housing system and described it as ‘unfair and unsustainable’.
“In order to make a meaningful difference and create a fair and long-lasting market dynamic we need to become a housebuilding nation once again,” he said.
Financial pressure on older generations
Meanwhile, Will Hale, CEO of equity release adviser, Key, said the study also raised concerns about the financial strains being put on the older generations.
He said: “While 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.”
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