The Bank of Mum and Dad
has become an increasingly vital cog in the property buying machine, with many young buyers now reliant on financial assistance from the parents to aid with the purchase of their first home.
In fact, the Bank of Mum and Dad's influence is now so high it is equivalent to the UK's 9th largest lender, with parents set to lend more than £6.5 billion to their children over the course of 2017, a dramatic rise even from 2016 when the Bank of Mum and Dad lent £5 billion. Recent research conducted by Legal & General and economics consultancy firm Cebr, also found that parents will pay for, or help to pay for, deposits on more than 298,000 mortgages by the end of 2017 and will have been involved in approximately 26% of all transactions taking place this year.
It's no wonder that first-time buyers and the bank of Mum and Dad have become so intrinsically linked, and the close connection is further backed up by the fact that 42% of prospective buyers are now turning to the Bank of Mum and Dad for financial support, with an average of £21,600 being handed over. As you would expect, millennials are the most likely to be receiving help from the Bank of Mum and Dad, with some 79% of funding from this source going to those aged 30 and under. This highlights just how important financial support is to younger buyers in particular, who simply don't have the savings or salary to afford a large deposit on their own.
Why is the housing market becoming more reliant on familial funding?
Furthermore, a report released by the Social Mobility Commission in March
found that the English property market is particularly reliant on the Bank of Mum and Dad. The findings from the government's advisory body showed that more than a third (34%) of first-time buyers needed support for their family to get on the housing ladder, while property consultants Savills found that family members offered £2.8 billion of financial support to buyers in England in the 12 months to September 2016.
The reasons for the increasing reliance on the Bank of Mum and Dad are fairly obvious and easy to nail down. High house prices and the need for first-time buyers to place down large deposits is making home ownership difficult for many to achieve, despite various government initiatives - such as Help to Buy, the Lifetime ISA, shared ownership and the Starter Homes scheme - which have been designed to make the task easier. Record low interest rates - held at 0.5% since 2009 and cut further to 0.25%
in August 2016 to stimulate the economy post-Brexit - has made saving money an increasingly difficult task, while tougher lending criteria introduced after the 2007-8 global financial crisis has made lenders much more careful and wary of who they lend to.
As a result, first-time buyers are turning to the Bank of Mum and Dad to help boost savings, fund deposits and even in some cases contribute to early mortgage repayments. While recent tax changes to the buy-to-let market have been designed to free up more stock for first-time buyers, and political parties of all persuasions have promised to increase supply and target more homes to those getting onto the ladder for the first time, demand is still very much outstripping supply and the first-time buyer marketplace is uber-competitive. In other words, many first-time buyers still find it difficult to dip their toes into the property market despite the situation now being better than it was 12 months ago.
How much does a first-time buyer home cost?
Looking closer at affordability, first-time buyer homes are nearly always more affordable than non-FTB homes and well under the overall average UK asking price. Since January 2015 the average property price for first-time buyer homes has stayed broadly the same, fluctuating between £190,000 and £220,000 in the last two and a half years.
It's never dropped below £190,000 in that time, and reached a peak of £218,535 only last month, in April 2016. As of now (May 2017), the average price for a first-time buyer home stands at £207,144. prices had been on an upward curve since December 2016, reaching a crescendo in April 2017 before dipping again between April and May.
Where is the first-buyer market most active?
Despite the higher cost of homes and deposits in London and the South East, first-time buyers are at their most active in the capital, the Home Counties and the South of England, with nearly 70% of first-time buyer conveyancing quotes since January 2016 sought by Londoners, while just over 50% came from those in the Home Counties. The Midlands, Scotland, the North West of England and Northern Ireland also saw more than 50% of the overall conveyancing quotes from first-time buyers since January last year.
Demand for first-time buyer homes is certainly holding up - in fact, all the evidence suggests it's growing by the year and the fact that the Bank of Mum and Dad is now the equal 9th largest lender - up from 10th last year - further cements the growing importance of this booming marketplace.
Buyers must take advantage of the wealth of information available
Our guide for first-time buyers
looks at a number of different issues - from affordability, costs and fees, to deposits, the Bank of Mum and Dad and how to take the right approach to buying a first home - to help give a fully-rounded picture of the potential challenges and obstacles faced, as well as offering practical and useful guidance.
Buying a home is never an easy process, whether you've done it once or a thousand times, so it's no surprise that many first-time buyers find it a daunting and stressful experience. Fortunately, there is a lot of advice, information and support
out there to make sure first-time buyers are prepared for every eventuality. As such, the old idiom of "failing to prepare is preparing to fail" is never more apt than when it comes to house purchases. If you are well-prepared, carry out thorough research and seek assistance from the right people, the chances of the process being smooth are much higher.