First-time buyers rely on Bank of Mum and Dad

Gráinne Gilmore and Rebecca O’Connor

A record number of young first-time buyers are relying on help from their parents to purchase a property as lenders continue to demand hefty deposits.

About 80 per cent of under-30s tapped the Bank of Mum and Dad to help them to buy a home in April, double the number that sought assistance three years ago, the Council of Mortgage Lenders (CML) has calculated. Of the 6,066 under-30’s who bought their own homes during April, only 1,254 were in a position to do so without extra financial help, the CML said. This is the lowest proportion since the CML started calculating the data in 2006.

Some lenders have eased lending criteria in recent weeks but most cash-strapped borrowers are still struggling to buy a home because, despite the 20 per cent drop in house prices, most banks and building societies require large downpayments.

The average deposit paid by first-time buyers has remained at a record 25 per cent for five months. At the peak of the housing boom, first-time buyers could access mortgages with no deposit.

But despite promises from banks that they will loosen their lending criteria in the Bank of England’s recent Credit Conditions survey, analysts warned that the situation is unlikely to improve significantly.

Paul Samter, the CML economist, said: “Overall access to mortgage finance will still be constrained by the diminished number of active lenders and the shortage of funding available to them.”

Only weeks ago Lloyds TSB, the part-nationalised bank, launched a mortgage deal aimed at struggling first-time buyers, allowing them to borrow 95 per cent of a property’s value as long as their parents or family save the equivalent of 20 per cent of the loan with the bank. Other banks are expected to follow suit.

Mr Samter said: “The Bank of Mum and Dad remains an apparently important source of help for young first-time buyers. Some products specifically reflect this fact and we may begin to see more products that echo this phenomenon.”

There was a further blow for borrowers as separate figures showed that rates for fixed-rate mortgage deals rose to a six-month high in June, despite the Bank of England base rate remaining unchanged at 0.5 per cent. The average rate on a two-year fixed-rate deal for borrowers with a 25 per cent deposit rose to 4.47 per cent, up from 3.96 per cent in May, figures from the Bank showed, pushing up the repayments on a £150,000 mortgage by £513 a year. But there was a glimmer of hope for home sellers as the CML said that activity in the housing market continued to pick up in May. The number of loans granted to first-time buyers, crucial to the health of the housing market, rose for the fourth consecutive month to 14,000. The overall number of home loans granted for house purchase also rose by 1,400, to 37,400, although this was down from 51,800 last year.

Some of the UK’s biggest housebuilders highlighted signs of improvement in the housing market in trading updates yesterday, after an increase in sales and price stabilisation in the past six months.

Barratt, Redrow and Galliford Try all indicated better trading conditions in the first half of 2009 compared with the second half of 2008, but said that a chronic shortage of mortgages and the practice of down-valuations, where mortgage lenders value a property lower than the agreed purchase price and reduce the amount they are prepared to offer, would continue to hold back recovery.  http://business.timesonline.co.uk/tol/business/article6677088.ece

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