Record number of first-time buyers seeking parental help for deposits

Eight out of 10 young people are thought to be receiving help from their parents to raise the huge deposits they need to buy their first home, research showed today.

A record 80% of first-time buyers under 30 are thought to be receiving parental backing, as they continue to put down deposits worth 25% of their property's value, according to the Council of Mortgage Lenders.

But the group said there were signs that banks and building societies had stopped tightening their lending criteria during May.

The average first-time buyer put down a deposit of just under £32,000 during May, only marginally less than their average annual salary of £32,840.

The Council of Mortgage Lenders (CML) said it was unlikely that young borrowers would be able to build up deposits of this size from their own resources.

Its estimate for the number of first-time buyers receiving help is well up on previous figures that suggested half of all buyers under 30 received money from the Bank of Mum and Dad during the second quarter of 2008.

But despite the huge deposits that first-time buyers are continuing to have to raise, the number of people buying their first home with a mortgage rose for the fourth month in a row during May.

Around 14,000 first-time buyers got on to the property ladder during the month, the highest number since October and well up on the low of 8,900 in January.

But the figure is still a far cry from the 30,000-plus people who bought their first home each month before the credit crunch struck.

The CML said there are signs that lenders have stopped tightening their lending criteria, with the average deposit put down by first-time buyers remaining unchanged at 25% for the past four months, while the average income multiple also held firm at 2.97.

The group said it expected to see a modest easing in lending criteria over the summer after lenders launched some higher loan-to-value products in recent months, while they have also signalled that they intend to increase lending to people with small deposits.

CML economist Paul Samter said: "The trend of tightening lending criteria seems to have subsided and we may see a modest easing in these measures over the summer, which will help some borrowers.

"But overall, access to mortgage finance will still be constrained by the diminished number of active lenders and shortage of funds available to them."

Any easing in the deposits required by lenders will be welcomed by buyers, who in many cases need a 40% deposit or equity stake to qualify for the best rates.

Figures from financial information group Moneyfacts.co.uk show that there are currently only six mortgages available for people with a 5% deposit, down from 1,126 in November 2007, while there are just 119 90% loans, compared with 1,152 19 months ago.

The CML figures also showed a further increase in lending to all borrowers buying a property, with 37,400 mortgages advanced for house purchase during May, the third consecutive increase and 4% more than in April.

But the number was still 28% lower than in May last year and remained well down on the seven-year average for the month of 96,000.

Remortgaging levels continued to fall, with just 29,000 homeowners switching to a better deal during the month, the lowest number since the CML began to collect data in this format in 2002.