Usage of the ‘bank of mum and dad’ hit record levels last year according to new research from the Social Mobility Commission. This is due to more first time buyers relying on their parents or family members so that they can purchase their first home.
Latest official data showed that 34% of homebuyers in England in 2013/14 needed a loan or cash from their parents; this is a significant jump from 2010/11 when only 20% used money from their parents to buy a property. The data also pointed to the importance of inherited money for house purchases with 10% of buyers relying on this.
The average amount given by parents was £17,500 showing the huge amounts first time buyers need to save in order to put a deposit on their first house. Insurance company, Legal and General, have raised this issue previously with their research which found that a quarter of mortgages in the UK last year were part-funded by parents.
The author of the Social Mobility Commission’s report, Dr Paul Sanderson from Anglia Ruskin University, commented on his findings; “Affordability problems mean that parents and other family members have a critical role in assisting their children to buy their first home, either by means of a gift of money or a soft loan,”
The lack of availability and high house prices has made houses unaffordable to the point that home ownership among young families has fallen drastically over the last 25 years. In 1990, 63% of 25-29 year olds owned their property that has dropped to 31% in 2015, with only 20% of 25 year olds owning a house or flat.
The drop in home ownership figures and increased borrowing from parents could provide issues now and in later life with the potential for a lack of security on living arrangements as more people are renting and lower social mobility.
Former Labour health secretary and chair of the Social Mobility Commissions, Alan Milburn, said; “Home ownership helps unlock high levels of social mobility, but it is in free-fall among young families. The way the housing market is operating is exacerbating inequality and impeding social mobility.”
The government have put plans in place to start to tackle the lack of housing and lack of affordability such as encouraging smaller developers to build houses, allowing more vertical building and trying to get councils to develop housing plans which are more specific.
Their Starter Homes programme is also set to start soon which is aimed at buyers between 23 and 40 providing them with the opportunity to buy a home at 20% below market value. The scheme will start in 30 areas of England and applies to homes up to £250,000 or £450,000 in London.
Many people are confident these government schemes will improve the outlook for first time buyers and the housing market overall while some think that the government’s intervention is too little, too late. However, until house prices drop and wages rise, we are likely to see further falls in home ownership and even more reliance on the bank of mum and dad in the coming years.