The incredible number of first-time buyers relying on the Bank of Mum and Dad

A look at why half of first-time buyers in the UK are forced to seek help from the Bank of Mum and Dad and suggestions for other sources of help.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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Homeownership is a big dream for many Brits. Unfortunately, first-time buyers face a slew of challenges when purchasing a home in the current era. A key challenge they’re facing right now is soaring house prices that have made saving enough for a deposit a daunting prospect. So, it comes as no surprise that young buyers are increasingly turning to the good old Bank of Mum and Dad for assistance.

So, to what extent are today’s first-time buyers reliant on family for help when buying a home? And where else can first-time buyers get help if they don’t have family in a position to assist? Let’s find out.

[top_pitch]

Why is it harder for first-time buyers to buy a home?

Rising home prices and a widening generational wealth gap are making it hard for first-time buyers to make their homeownership dream a reality.

According to family mortgage broker Tembo, younger first-time buyers are expected to pay a minimum of £270,620.59 for their first home, which is approximately nine times the average UK salary. In comparison, homeowners who are over 45 years old only paid an average of £78,049.59 for their first property.

Amid a challenging economic climate, generational wealth gaps are also widening. The data from Tembo shows that 70% of first-time buyers report feeling envious of the older generation in terms of the economic climate they face.

However, homeowners aren’t oblivious of this generation wealth gap according to Tembo. Up to 83% agree that younger generations have a more difficult time getting on the property ladder, with 41% actually feeling guilty about it.

How is the Bank of Mum and Dad helping first-time buyers?

Tembo’s research on the trend of first-time buyers turning to the Bank of Mum and Dad discovered that:

  • 48% of first-time buyers expect they will need some form of assistance from family when buying a home. This includes cash gifts, remortgaging, acting as a guarantor or even buying property jointly. 
  • 50% of first-time buyers cannot afford to buy a property without their parents’ help, while 13% are unsure whether they can afford it without support.
  • 92% of first-time buyers would happily accept money from family towards their first home.

The good news is that the majority (66%) of homeowners with children would be happy to financially help them get on the property ladder.

Those with annual earnings of more than £75,000 were found to be the most likely to help their children buy their first home (76%).

[middle_pitch]

Where else can first-time buyers get help?

Naturally, not every first-time buyer can count on the Bank of Mum and Dad for help. If that’s you, don’t despair. There are several existing schemes and incentives that can help you get on the property ladder.

Here are three that are worth checking out.

1. Help to Buy: Equity Loan Scheme

Under this scheme, the government will give you an equity loan worth up to 20% of a property’s value (40% in London) to use towards the purchase of a new-build property. You will only need to raise a 5% deposit and take out a mortgage for the rest. The loan is interest-free for the first five years.

Lifetime ISA

First-time buyers aged between 18 and 39 can open a Lifetime ISA to speed up the process of saving for a deposit. You can put up to £4,000 a year into this ISA (until you are 50) and receive a government bonus of 25%. That’s up to £1,000 per year of free money to use towards the purchase of a home.

LISAs can be opened with a bank, a building society, or an investing solutions platform that offers the product.

Shared ownership

The shared ownership scheme allows you to buy a share of a home (25% or 75%) from a landlord, who can be a council or a housing association. You then pay subsidised rent on the remaining amount.

You will still need to take out a mortgage for the share you own. However, since you are not buying the entire home, the amount of deposit you will need will be lower.

Final word

It’s important for first-time buyers to have an open mind when looking for their first property. Opting for a flat instead of a detached house could prove to be a smarter and cheaper option. They’re ideal for first-time buyers on a tight budget and whose priority is to get on the property ladder.

Though flats have their drawbacks, including less space and some restrictive policies, they tend to be cheaper. That potentially means a lower deposit to save for and lower monthly repayments.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

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