Bad news for mortgage seekers who rely on ‘bank of mum and dad’

THE so-called “bank of mum and dad” has come under threat, amid plans by a mortgage lender to restrict loans to those who have largely relied on family help when buying their first home.

Nationwide Building Society, the second biggest lender in the country, is said to be cracking down on parental contributions in response to economic uncertainties brought about by the coronavirus pandemic.

The change will affect buyers seeking lower-deposit mortgages who will need to prove they have saved at least three quarters of their deposits.

Nationwide is also understood to have introduced restrictions on types of property new homeowners can buy to ensure mortgages are only available on homes that are at least two years’ old.

Last month, Nationwide announced it was lowering the minimum deposit it requires from first-time buyers to 10 per cent from July 20. It followed the Government’s announcement last week that people getting on or moving up the housing ladder will pay no stamp duty on the first £500,000 of their purchase when they move home.

But the latest development could cause obstacles for first-time buyers with the “bank of mum and dad” helping many to get their feet on the property ladder.

Savills estimated nearly 40 per cent of first time buyers relied on family financial support in 2019, lending around £5 billion in total. The estate agents also forecast a 14 per cent jump in lending from parents and grandparents because of the pandemic – an equivalent to an extra £700million in 2021 compared to 2019 – while insurance firm Legal & General reported the average amount homebuyers received from their families increased from £17,500 in 2016 to £24,100. According to the Council of Mortgage Lenders, the average deposit needed for first-time buyers in the UK is now £54,770.

Large regional variations remain however, with first-time buyers in London expected to save £150,760, while potential buyers in Wales, Northern Ireland and Scotland only need between £25,000 and £30,000.

The Telegraph has contacted Nationwide for comment.