The coronavirus pandemic of 2020 has caused significant impacts across the globe, draining bank accounts as wages are slashed, or people are made redundant. As a result, many young professionals have resorted to asking their parents for loans to fund their lifestyles in the midst of one of the greatest economic disasters the world has ever seen.
Among the most affected are young people looking to become first time buyers of homes. Economic uncertainty has caused buyers and mortgage lenders to face enormous risks. Unsure of the future, buyers don’t want to push their budgets for fear over future job prospects and the potential for redundancy or wage cuts. As a consequence of the uncertainties surrounding house price stability and the resultant threat of negative equity, mortgage lenders have been forced to stop giving low deposit mortgages which were most often used by young first-time buyers. These factors have driven buyers to look for more affordable accommodation, even if that meant abandoning cities and focusing on smaller towns or even relocating back to their hometowns.
The pandemic has effectively shut down the housing market in the UK. Hence, the number of house purchases has fallen drastically. This is illustrated by an L&G study which provided useful insight into how the bank of mum and dad has been affected by the pandemic. The study indicated that in comparison to the 2019 figure of £6.3 billion, the bank of Mum and Dad is only predicted to lend £3.5 billion due to the stoppages in the housing market. However, despite the fall in lending, forecasts indicate a rise in the number of housing purchases backed by the bank of mum and dad from 19% in 2019 to 23% in 2020. This encapsulates the economic pressure young professionals are facing, for them to need financial assistance from their families to purchase their first home. This pressure is further exacerbated by the fact that 33% of those expecting to buy a house within the next five years said that the house would likely be purchased using money lent by friends and family.
One of the most considerable impacts of the pandemic on the bank of mum and dad is that the amount of money being lent is set to increase drastically; with the average amount being £20,000. Furthermore, 15% of lenders declared that they would lend more than usual owing to the difficulties brought about by the pandemic. Of those who offered to lend more, 18% stated that they would give at least 50% more as a result of the pandemic.
The bank of mum and dad looks set to be a springboard for the resurgence of the housing market in the post Covid-19 world. These loans from families and friends will provide the money needed for first-time buyers to take their first step into the housing market. This huge dependency on the bank of mum and dad is indicative of a bigger problem in the UK housing market; one that places unnecessary strain on the bank accounts of parents and grandparents who are dealing with financial issues of their own.
The fact that the bank of mum and dad will lend more than the standard, whilst dealing with the pandemic themselves, puts extra pressure on the finances of these families. This also illustrates the sacrifice families are making for their children by offering money at their own expense. Money that could have been spent on holidays, renovations, or new homes for themselves has been diverted and given to their children so that they may progress onto the property ladder.