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Bank of Mum and Dad Drying Up for UK First-Time Homebuyers: Hamptons Analysis

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Title: Decline in “Bank of Mum and Dad” Support Impacts First-Time Homebuyers in the UK

Subtitle: New data reveals a decrease in parental contributions, prompting first-time buyers to turn to siblings for assistance

LONDON – The cherished “bank of mum and dad” that has long supported first-time homebuyers in the UK is faltering, as parents’ ability to contribute towards their children’s mortgage deposits decreases. According to analysis conducted by broker Hamptons International, parents accounted for 72 per cent of family members contributing to first-time buyer deposits in the year through July. This figure represents a decline from 74 per cent last year and 80 per cent in 2018, indicating a shift towards siblings as a source of support.

The changing landscape of homeownership in the UK is a significant factor in this downturn. As homeownership rates decline across generations, younger parents today are less likely to own homes compared to their predecessors. This reduced ability to withdraw equity from properties hampers their capacity to pass on funds to their children, explained Ms Aneisha Beveridge, head of research at Hamptons.

The increasing financial burdens faced by UK households, including high borrowing costs and inflation, have led to a slump in first-time buyer sales. As aspiring homeowners remain trapped in expensive rental contracts, mortgage costs continue to surge. Consequently, 32 per cent of mortgaged first-time buyers sought financial assistance from their families in the first seven months of 2023. Although this figure is slightly higher than last year, it represents a decrease from 40 per cent in 2017.

While parental contributions have declined, the proportion of siblings supporting first-time buyers has nearly doubled over the past three years, rising to 11 per cent, as revealed by the data.

Ms Beveridge cautioned that if interest rates remain high for an extended period, the disparity between those with and without family support will widen. Individuals without assistance are likely to face the need to save for a longer duration, delaying their entry into the property market or forcing them to purchase smaller homes.

To put the situation in context, UK parents gift approximately £14 billion each year to their children, according to the Institute for Fiscal Studies. These funds are often directed towards the substantial deposits required to secure a home. However, more than half of these transfers are made by the wealthiest fifth of adults, predominantly homeowners residing in London and the South East. This has raised concerns about inequality in terms of homeownership opportunities.

The data also highlights that over a third of first-time buyers who receive support from their families manage to provide a deposit of at least 20 per cent, surpassing the share of those purchasing without assistance. London first-time buyers have been gifted an average of almost £35,000 in deposit contributions this year, more than double the national average of around £14,000.

The interim CEO of Skipton, Ms Charlotte Harrison, emphasized the challenges faced by aspiring homeowners due to high property prices, escalating rents, and a squeeze on living costs. She stated, “it’s making it almost impossible for people to get onto the property ladder without a boost to their savings.”

Interestingly, the data reveals that London homebuyers are less likely to receive mortgage support compared to other parts of the country. In the capital, fewer than a third of first-time buyers have received a deposit contribution this year, slightly below the national average. In contrast, 40 per cent in Yorkshire and The Humber, where house prices are lower, have benefited from family assistance.

Ms Harrison concluded by acknowledging that not everyone has access to family wealth, which affects their prospects of homeownership. She highlighted that, despite potentially meeting typical mortgage affordability checks, many individuals are held back from achieving their homeownership aspirations due to the lack of a deposit.

Overall, the decline in support from the “bank of mum and dad” is impacting first-time homebuyers in the UK, necessitating alternative avenues of financial assistance.

More detail via The Straits Times here… ( Image via The Straits Times )

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