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Is the Bank of Mum and Dad running low on funds?

Posted: 15-02-2024

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    Since 2016, Legal & General has been tracking ‘family lending’. In other words, homebuyers getting support from the Bank of Mum & Dad to get onto the property ladder.

    The ‘bank’ definition has changed since the survey began, though. Rising house prices and deposits coupled with stagnating wages have forced first-time buyers to look beyond the parental unit for funds.

    This now-monikered ‘Bank of Family’ has also become more innovative. It’s putting up its younger members rent-free so that they can save deposits.

    And, on the back of some parents reporting up to £600/month childcare increases post-pandemic, it’s also keeping childcare in-house.

    But, according to further post-pandemic polling, other sources hint at trouble up ahead. More and more older people, especially those in later life, are concerned about their future wealth.

    With rising house prices and deposits to buy them less attainable, how much will tighter family purse strings impact future generations’ access to the property ladder?

    Trying to tell the wood from the trees

    Mid-2023, a glut of reports about the Bank of Family hit the Internet. They strove to answer questions like:

    • How many first-time buyers leveraged future inheritance to buy now?
    • What were the advantages of dipping into the Bank of Family whilst homebuyers were so young?
    • What was the split by age range of family borrowers?

    Let’s take a look at the answers to those questions now.

    The volume of first-time buyers leveraging the Bank of Family

    Around two-thirds of first-time buyers leveraged the Bank of Family in 2023. If you take L&G’s survey, they estimate 67%, or 63% if you go on Savills’ figures. In monetary value, that’s estimated at between £8.1-8.8bn respectively.

    L&G predicts that figure to rise to £10bn next year. In comparison, first-time buyers leveraged only half that from family members to buy a home in 2020.

    House prices, and the deposits required for an affordable mortgage, may be enough to reach the 2025 prediction without increases in volume. 

    We also have no immediate successor to Help-to-Buy. First-time buyers used H2B to the tune of £2.2bn in 2022. On that basis, the total amount borrowed from the family coffers in the next two years may climb even higher.

    But it’s not a uniform picture across the UK. Familial wealth—often tied up in existing property—and location may impact the level of assistance new home buyers can expect.

    Disparity of family funds by area

    I expected the disparity between the amount a family lends its fledgling homeowners in the North and South to be significant. Whilst there’s a leap, it’s not as far apart as I thought.

    Rather than copy the report‘s whole list, here’s the top two regions and the bottom two:

    • First: East of England (£32,100)
    • Second: London (£30,200)
    • Next-to-last: East Midlands (£20,000)
    • Last: West Midlands (£19,800)

    The spread of the wealth

    The bulk of the family lending goes towards helping those under 35 get onto the property ladder. No surprise there. But, at 57% of the total, it’s only just the bulk, which is surprising.

    The issue is, the average age of a first-time buyer is rising. Ten years ago, it was 29. Today, it’s 32, up 10%.

    This is reflected in the L&G data. Today, a third of family-raised funds to buy a home goes to those aged between 35-55. This has serious implications for the future.

    Then combine that stat with an article I wrote for Freelancer Financials earlier this week, which, in part, quotes:

    “The average 26-year-old with help [from The Bank of Family] paid about £254,000 for their first home. Those with no help waited a decade—until they were 37—to buy a property for an equivalent sum.”

    Are you beginning to see the issue for future generations?

    Will owning a home become exclusive?

    The statement in L&G’s report that really stood out concerned the lengths parents and grandparents go to to support their (grand)children:

    half of parents and grandparents drain cash savings to help loved ones, to the tune of £25,600 on average.

    It jarred with results just published of Canadian Life’s biannual report. Here’s a summary of the headline figures gleaned from its 5,000 respondents:

    • 57% of UK adults responded that their financial situation worsened in 2023;
    • 39% of people aged 65-74 lack confidence in their future finances, up from 18% in 2021;
    • 51% of people aged 55-64 lack confidence in their future finances, up from 37% in 2021;
    • 23% of people aged 75+ lack confidence in their future finances, up from 11% in 2021.

    So, tell me this…

    What happens when these people’s children/grandchildren come seeking financial assistance?

    The over-55s are already worried about keeping their own roof over their head. Surely, they’ll think twice about stretching themselves further, even if it is for their kids.

    It’s only going to get worse, based on L&G’s findings.

    A third of current buyers leveraging family finance are aged 35-55. What happens when they become parents/grandparents to first-time buyers?

    They’ll still be paying their own mortgage off.

    And what about those borrowers today who are 11 years behind their peers who had help getting onto the property ladder? It’s taking them until the age of 37 to buy a home that isn’t even as expensive as the national average.

    This all points to today’s generation of homebuyers (without familial help) paying for their homes well into retirement.

    The result is obvious. Wealthier families will be able to help their offspring buy a home. Those without significant savings will find it harder and harder to buy a home.

    So, what can we do? Answers on an Equity Release form, please…

    Author: John Yerou

    John Yerou is the owner and founder of the award-winning Mortgage Quest Ltd and its subsidiary brands.

    In 2004, John began his career in financial services as an independent mortgage advisor and broker. He's since been instrumental in negotiating bespoke mortgage underwriting criteria for professional contractors with many high street lenders.

    As such, John's one of the most respected and recognisable names in securing mortgages for the UK's flexible workforce, incorporating independent professionals and the self-employed.

    His recognition as the go-to mortgage expert has grown exponentially, reflected in citations and his own publications in both national and contractor-oriented press.

    Posted by John Yerou

    on February 15th, 2024 15:58pm in Latest mortgage news & opinions.