Bank of Mum and Dad is one lender to see a boost from the pandemic. Here’s why that’s a problem

Parental gifts and loans are projected to be behind 23 per cent of transactions this year, writes James Moore. But only a fortunate few can count on them as lenders rein in their appetite for risk

Paid for by the Bank of Mum and Dad? Its lending is set to increase (PA)

A rare lender to get a shot in the arm from the pandemic is the fabled “Bank of Mum and Dad” (Bomad).

It was one of Britain’s most important mortgage providers before Covid-19 burned its way through the UK economy and housing market, being involved in about one in every five (19 per cent) purchases last year, according to research by life insurer Legal & General and the Centre for Economics & Business Research.

That figure had actually been declining, but the pandemic has reversed the trend and it is now projected to rise to 23 per cent this year.

A survey of borrowers and family lenders conducted for L&G by YouGov between 31 July and 3 August also found around a quarter (24 per cent) of first time buyers were “more reliant” on help from family to fund purchases against 8 per cent who said they were “less reliant”.

This shouldn’t come as too much of a surprise. The outbreak of Covid-19 has severely stressed lenders. The recent banking reporting season saw billions of pounds set aside by banks to cover them against loans going bad.

Their appetite for riskier lending – which inevitably includes first time buyers with limited deposits borrowing at a high level of loan to property value – will inevitably have been constrained.

The jobs crisis, and the return of mass unemployment, has also played into that. Small wonder, then, that people are knocking on their parents’ doors in search of help.

The amount of money lent (in some cases gifted) is projected to fall to £3.5bn from £6.8bn in total, but don’t be fooled by that because the number of property transactions is also projected to fall by more than half as a result of the market gumming up in the midst of lockdown.

The average loan/gift now amounts to £20,000. Nearly one in five family lenders are considering providing more as a result of the pandemic.

The researchers say that the housing market’s recovery from the latter is inevitably going to be drive by the Bomad. This, they argue, is symptomatic of a broken market.

It is also a deeply unfair market.

The Bomad helps people achieve their dreams but it is far from an equal opportunities lender. Its loans are available to only to a fortunate minority.

L&G also says parents, and grandparents may constrain their ability to fund their retirements by playing lender.

It’s a pension and retirement income provider, so it does have an interest here. But that doesn’t invalidate the point.

So how to fix it? Build more houses, says Nigel Wilson, L&G’s CEO. Specifically, build more more affordable houses. It’s no good throwing up luxury flats. There are more than enough of them to go around.

L&G has become an important player in the affordable housing market. It is behind numerous rental and shared ownership properties.

Shared ownership is controversial. Critics, to whom I’ve spoken, argue that it leaves people who are part tenant, part owner with the worst of all worlds, buying part of a property while being responsible for its upkeep and still paying rent. About two in five of the affordable properties L&G builds are in this sector.

That said, there would be less need for this sort of arrangement if there were more homes that people could afford to buy outright being built.

So, should we, as Boris Johnson says “build, build, build”?

Up to a point. Homes that are affordable to first time buyers still need to be places where people want to live, with adequate facilities, transport links, and the like included.

Britain’s housing shortage is a deep and longstanding problem. There is nothing new about this. The trouble is, when deep and longstanding problems are targetted by politicians who trade in cheap slogans and offer apparently simplistic solutions, the outcomes aren’t usually pretty.

Unfortunately, the Bomad is one lender whose future is secure.