First-time buyers tap parents for deposit

Despite house prices declining by around a fifth from peak levels in the autumn of 2007, first-time buyers are turning to the "Bank of Mum and Dad" in increasing numbers to get on to the housing ladder.

The Council of Mortgage Lenders says that as many as 80 per cent of first-time buyers aged under 30 are receiving help from parents to find a deposit in a market where prices remain historically high in relation to salaries and wary banks and building societies routinely demand deposits of 25 per cent. About 40 per cent needed that extra boost before the credit crunch. But the CML added that the situation was at least not worsening, and the typical first-time buyer income multiple had held at 2.97 in May.

The CML agreed with findings of the Bank of England's latest surveys in predicting a loosening of lending criteria over the coming months. The launch of a 125 per cent loan-to-value mortgage from the Nationwide Building Society, albeit to existing customers in negative equity, has been taken by some as a pointer to more generous lending.

The number of first-time buyer mortgage approvals was flat in May compared with April, said the CML: 14,000 loans with a value of £4.7bn, 42 per cent lower than this time last year, itself a very depressed time. Analysts say the flow of new money is not enough to drive up prices.

Those fortunate enough to obtain credit are having to pay more for it. The Nationwide's new product charges 7 per cent, and the Bank of England reported yesterday a significant rise in fixed-mortgage interest rates, reflecting money markets in turn increasingly pricing in future inflation and tighter monetary policy.

The average interest rate offered by lenders on a two-year fixed-rate deal for 75 per cent of the value of the property rose to a six-month high of 4.47 per cent in June from 3.98 per cent in May.