Online estate agency Tepilo discusses a research project by the Social Mobility Commission which suggests that more first-time buyers are using ‘the Bank of Mum and Dad’.
When most people purchase a home they'll carefully consider which bank they want to fund their mortgage. Whether it's Nationwide, Halifax or Santander, there's a multitude of lenders for borrowers to choose from.
But there is one unorthodox bank that has been crashing the party in recent years and that is of course 'the Bank of Mum and Dad'.
A new report from the Social Mobility Commission has brought the extent of 'the Bank of Mum and Dad's' rise sharply into focus.
According to the study, which comprises analysis of Government and housing market data by Cambridge and Anglia Ruskin universities, the proportion of first-time buyers relying on inherited wealth or 'the Bank of Mum and Dad' has reached an historic high.
The analysis confirms that 34% of first-time buyers in England now turn to their family for a financial helping hand towards their property purchase. This is up from 20% in 2010.
And it's not only first-time buyers receiving familial financial support, 12% of existing owners are benefitting from a gift or loan when acquiring a new home.
Interestingly, the report suggests that first-time buyers who receive money or a loan from their parents can buy 2.6 years earlier than those who do not. In London, this figure rises to 4.6 years. The average income of households in the capital who rely on family support is £40,900 compared with £42,400 for those who do not.
The academics predict that the number of future first-time buyers will rise slightly in the short-term, then fall gradually over the next quarter century. They say the speed and extent of the rise and fall will be determined by the robustness of the economy.
If the UK economy strengthens, then the number of first-timers using the services of 'the Bank of Mum and Dad' could reach 39% by 2021/22. However, if economic activity weakens then it's likely the proportion of buyers using familial support for a property purchase will stay at around 34% until 2024/25, before reaching around 40% by 2029.
The Social Mobility Commission has put forward a number of proposals which it says could help the Government to increase home ownership among the younger generations.
They are as follows:
- Commit to a target of three million homes being built over the next decade with one-third – or a million homes – being commissioned by the public sector.
- Expand the sale of public sector land for new homes and allow targeted house-building on Green Belt land.
- Modify the Starter Home initiative to focus on households with average incomes and ensure these homes when sold are available at the same discount to other low-income households.
- Introduce tax incentives to encourage longer private sector tenancies.
- Complement the Heseltine Panel’s plans to redevelop the worst estates with a matching £140 million fund to improve the opportunities social tenants have to get work.
The growth of 'the Bank of Mum and Dad' may be criticised by some quarters and its increased popularity is most certainly a sign of the times we live in. However, the figures don't lie and it remains important - and potentially beneficial - for prospective buyers to explore all financial options available to them when they come to purchase.
Those who have a solid plan in place are more likely to be issued with a mortgage quicker and subsequently move into their new property sooner and hopefully with less hassle.