Many FTBs have turned to "Bank of Mum and Dad"

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 £23bn worth of FTB purchases, or £5.6bn 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. Peter Dockar, Head of Mortgages at HSBC, commented: “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. 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.” 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, said: “Mortgage lending to British FTBs fell off a cliff during the financial crisis. To some extent, families have moved in to fill the gap – prov
Article courtesy of Property Investor Today
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