The cost of living crisis is taking its toll on Britain’s so-called ‘Bank of Mum and Dad’, which first time buyers have traditionally relied on to help them afford a deposit in a competitive housing market. Bloomberg News reports that although parents still account for 72% of family members contributing to first time buyer deposits, this is down from 74% last year.
In 2018, before the pandemic and the subsequent cost of living crisis, the Bank of Mum and Dad was behind 80% of all deposit donations. However, about 46% of all first time buyers still receive financial help from their parents, according to the estate agents Savills. This amounts to £8.8bn being passed on each year down the generations.
A spokesperson for Hamptons International, who analysed data from Skipton Building Society, said that the declining family donations is because younger parents are less likely to be home owners themselves, or to have surplus wealth to pass on to their adult children.
Aneisha Beveridge, head of research at Hamptons, said: “As homeownership rates decline through the generations, younger parents today are less likely to be homeowners than their predecessors. This reduces their ability to withdraw equity from their home to pass on to children.”
The UK has been particularly badly affected by stubbornly high inflation which has led to a series of interest rate rises. The base rate is currently set by the Bank of England at 5.25%, sending mortgage rates soaring to well over 6% in many cases. This has put home ownership beyond the reach of thousands of potential new first time buyers.
Beveridge continued: “Should interest rates stay higher for longer, it will exacerbate the gap between what those with and without family help can afford. Those without help will likely face saving up for longer and buying later in life or purchasing a smaller home.”
Charlotte Harrison, interim chief executive officer at Skipton, commented: “With high property prices, escalating rents and the cost-of-living squeeze further impacting people’s ability to save for a house deposit – it’s making it almost impossible for people to get onto the property ladder without a boost to their savings.”
She added: “Not everyone is lucky enough to have access to family wealth in this way. For many, despite potentially being able to pass a typical mortgage affordability check — it’s the lack of a deposit that’s holding them back from their home ownership aspirations.”
For those buyers lucky enough to have a parental contribution to a deposit, there are a few points to bear in mind. The mortgage broker and solicitor should be informed of the source of funds as part of the money laundering regulations, and the parents may also have to provide a written statement confirming that the funds are a gift.
Some parents may also wish to take the precaution of protecting their contribution with a deed of trust on behalf of their children in cases where the child is buying with a partner. This means that if the couple should break up, the original donation will remain with the child.
If you are struggling with debt at the moment because of cost of living challenges, get in touch with us today to receive independent debt advice on the debt solutions that may be available to you.
References
https://www.bloomberg.com/news/articles/2023-08-27/uk-s-bank-of-mum-and-dad-runs-dry-as-homebuyers-turn-to-siblings?leadSource=uverify%20wall#xj4y7vzkg
