Today an increasingly popular route to property ownership for many young people, and indeed those in their 30s and 40s with families is either via inheritance or a loan from mum and dad.
This is despite the fact that employment is higher than ever before and unemployment the lowest since the 1970s. The reason house prices are so high is, of course, due to the number of houses being built failing to keep up with a rising population. It is the most simple law of economics; supply and demand.
The situation in London and the South East is becoming so dire that the number of 25 to 34-year-olds who own their own homes has halved over the past two decades from 62 to 32 percent. Chancellor Philip Hammond’s pledge to build 300,000 new homes a year and a loosing of planning restrictions on brownfield sites will go some way to alleviate the matter – but it won’t alter the currently high price of property.
The figures are backed up by the UK government’s 2016-2017 English Housing Survey, which showed that 63 percent of households were owned, compared to 71 percent in 2003. The number of private sector renters aged 35 to 44 had increased from 18 percent to 29 percent over the past decade.
Around one-third of first-time buyers use The Bank of Mum and Dad
Around one-third of first-time buyers now use the bank of Mum and Dad, according to The Social Mobility Commission. They predict that figure will rise to 40 percent by 2038/40.
Paul Johnson, director of the Institute for Fiscal Studies, was recently quoted saying that poor interest rates on savings together with a lock on public pensions have made inheritance and the bank of Mum and Dad more important than ever.
“Inheritance is increasingly contributing to life wealth, which in turn has consequences for social mobility, and therefore inheritance is probably the most crucial factor in determining a person’s overall wealth since Victorian times,” he said.
Guide for parents lending mortgage finance to children
Acknowledging this The Post Office, together with The Money Charity last month published a guide to help families cope with this changing dynamic where parents either loan or provide children with a financial gift in order for them to buy their first property.
Their own research showed that 35 percent of first-time buyers were now buying property this way. At the same time, 82 percent of those surveyed were reluctant to take the money in the first place because of the stress it would put on the relationship.
The Guide covers subjects such as how to broach the subject of money with family in the first place and the type of decisions to be made – including legal ones. The latter is important considering that in Australia there has been a rise in the number of parents suing children for the return of ‘well-meaning loans.’
As well as via inheritance and gifting, some first-time buyers are also using their parents as co-guarantees, meaning that if they default on the mortgage mum and dad will pick up the bill for the financial fall-out.
High street lenders offer special ‘parental’ mortgages
As a result, some high street lending institutions, such as Barclays, are offering Joint Borrower Mortgages where a parent’s income becomes party to the mortgage offer. They also offer a Family Springboard Mortgage where a borrower can get a 100 percent mortgage if a family member gives a 10 percent deposit to the bank.
Upmarket banks Coutts offers similar assistance with their Offset Select Mortgage which allows account holders offset a family member’s loan against their own deposits.
Get more mortgage advice and information from our specialist network, contact us today.