We’ve all heard of the Bank of Mum and Dad, now Tepilo looks at new phenomenon the Bank of Gran and Grandad and how its helping first-time buyers.
We’ve heard plenty about the Bank of Mum and Dad helping first-time buyers onto the property ladder, but the Bank of Gran and Grandad are also playing an increasingly important role.
With house deposits so high, and getting higher by the year, first-time buyers aren’t merely turning to parents, but grandparents too, to help fund a property purchase.
New research by Santander Mortgages has revealed that 8% of first-time buyers have utilised the Bank of Gran and Grandad to raise the funds needed for a hefty deposit. This is four times higher than just five years ago, when only 2% of first-time buyers looked towards their grandparents for financial assistance.
Nowadays, it is the norm for first-time buyers to turn to family for help, with 32% of those looking to buy admitting they will need a family loan to help with their deposit. This compares unfavourably to current homeowners, with only 13% of people who already own their own home relying on financial support from family.
High deposits are the main issue, something which isn’t made any easier by record low interest rates (giving savers very little incentive or reward for saving) and a high cost of living, particularly in London and the South East.
While the cost of mortgage borrowing is at record lows, meaning mortgage repayments are often cheaper than rent, purchasing a home in the first place is proving more difficult, with years of saving required for the necessary deposits.
On average, first-time buyers believe that 32% of their salary will be needed for a deposit, with 19% expecting to spend over half of their annual income to secure that precious first property.
The government has tried to aid first-time buyers with various schemes and initiatives, but they have frequently been criticised for not doing enough, for only tinkering around the edges of a long-term problem.
Typically, it takes first-time buyers around five years to save up enough money for a deposit, with many choosing to live at home with parents rather than renting to increase their savings. Parents prove generous in this respect, with 20% having no rental agreement with their folks - instead simply contributing as and when they can - while 15% pay nothing at all.
Nonetheless, spirits among first-time buyers are still pretty high. Despite the challenges faced in saving enough of a deposit, and seeking alternative sources of funding from close family members, the research found that some 10 million adults are planning to purchase their first home in the next five years. What’s more, 45% of these prospective first-time buyers are more positive about their chances of doing so than they were a year ago, while 20% now have a more negative outlook.
In addition, the uncertain political and economic climate being driven by Britain’s withdrawal from the EU is not dampening first-time buyer optimism, with 44% of those surveyed saying that they plan to go ahead with a purchase anyway despite concerns over the state of the economy. A further 39% said economic factors would have no bearing on their decision at all.
The positivity is understandable to some extent. Sales to first-time buyers are on the rise, with Help to Buy, Right to Buy and Starter Homes schemes available. Meanwhile, tax changes in the buy-to-let market – including the introduction of an extra 3% stamp duty surcharge on additional homes and the upcoming phasing out of mortgage interest tax relief – have been designed to increase the amount of stock available to first-time buyers.
But, for many, it’s still a struggle and more needs to be done to help young people onto the ladder for the first time. It’s something that remains a priority for many people across the UK, not just those who fall under the bracket of the so-called Generation Y. Home ownership is a goal that many of us aspire to – after all, in Britain we have a unique relationship with property and owning one of our own, much more so than our Continental counterparts.
While many grandparents and parents will be perfectly happy to help their grandchildren and children out, is it really necessary for so many first-time buyers to be seeking alternative income streams? For a number of reasons, a salary is no longer enough on its own to help fund a deposit, no matter how hard first-time buyers save. Many will still have to turn to family for assistance at some point.
Such a reliance on the Bank of Mum and Dad and the Bank of Gran and Grandad doesn’t suggest a particularly healthy situation, but while house prices continue to outpace wage growth, deposits remain high and the cost of living expensive, it seems likely that these unofficial financial institutions will be utilised extensively in the coming years.