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One in four young homebuyers rely on 'Bank of Mum and Dad'

Mother and daughter hug on the sofa

Many first-time buyers are turning to their parents to help raise the significant deposit needed to get on the property ladder, according to new research from the Bank of England.

Young buyers who have had support from the ‘Bank of Mum and Dad’ put down a deposit twice as large, buy a bigger first home and have smaller mortgage payments than those who did not.

Deposits 2.5x larger

Looking at mortgages issued between 2015 and 2017, Bank of England economist May Rostom found that out of every 100 new homeowners below the age of 30, around one in six will have had financial help from someone else. That figure rises to one in four for buyers under the age of 25.

On average, deposits are two and a half times larger, loans are 30% smaller and houses cost £15,000 more for those who get help, compared with those who do not.

Those who get a helping hand onto the housing ladder “are typically less-leveraged and have lower mortgage payments, leaving more leeway for them to save or spend their incomes on other things,” Rostom said.

Parental contributions also help people buy their first home on average four years earlier than those without them — and those without such support tend to buy a cheaper property rather than wait years longer to save up a bigger deposit.

Economic volatility

Although the challenge of saving for a deposit is nothing new, today’s high property prices, rental costs, mortgage rates and inflation mean that first-time buyers face having to raise an ever larger amount of money at a time of reduced spending power.

“Economic volatility has seen prospective buyers battle high inflation, pushing prices up and limiting the amount they can save,” explained Ben Thompson, deputy CEO at Mortgage Advice Bureau. “Meanwhile, higher interest rates have lowered the amount they can borrow, meaning bigger deposits are needed. This has led to many prospective buyers having to put more away than they had initially planned.”

Research by Mortgage Advice Bureau found that first-time house planning to purchase a home in the next two years are aiming to save over £11,500 more for their deposit in light of recent economic uncertainty.

Around 15% are delaying their plans to buy altogether and almost a third said that saving for a deposit was one of the biggest barriers to home ownership.

Half had help buying their first home

A separate study by intermediary-only lender The Mortgage Lender reveals that 50% of all current homeowners with a mortgage had some form of additional support getting onto the property ladder. Common forms of help included:

  • Bank of Mum and Dad (11%)
  • Help to buy ISA (6%)
  • Lifetime ISA (5%)
  • Rent to Buy scheme (5%)
  • Shared Ownership scheme (6%)

Chris Kirby, head of Key Accounts & Specialist Distribution at The Mortgage Lender, said: “Those looking to get onto the housing ladder should take time to research what options are available to them, whilst also seeking the advice and guidance of a mortgage broker, who will be able to help clarify what support there may be, but also how best to achieve the level of borrowing they’re looking for sooner rather than later depending on their situation.”

Posted by Fidelius on August 21st 2023

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