Half of all first-time buyers will climb the property ladder in the next three years solely because of the cash from their parents, according to figures from a leading real estate agent.
The true extent of buyers’ financial difficulties was first revealed by Savills’ research.
It found that 47 percent of all first home buyers would not make the financial move on their own. It equates to nearly half a million first-time buyers, at $470,000.
Half a million first-time buyers will receive financial assistance through a deposit in the next three years, according to Savills Research (stock image)
In total, Savills has calculated that it translates to £25 billion which will be given and loaned by the mother and father bank between 2022 and 2024.
It is based on mortgage data provided by mortgage trader UK Finance, which uses retail prices.
Number of first-time buyers receiving family assistance and the amount of assistance awarded to get on the housing ladder (* projections)
It comes amid rising annual home prices, with Nationwide revealing this week that values rose 11 per cent in the year to July.
The monthly increase of 0.1 percent means that prices have increased for 12 consecutive months, maintaining annual price growth in double digits for the ninth consecutive month.
Banking giant Halifax said house prices fell slightly in the same month, but the median house price remained at £293,221 and annual property inflation stood at 11.8 per cent.
Savills said the rapid rise in prices means that first-time buyers are struggling more than ever to keep their savings in order to increase deposits at the same pace as property values.
Meanwhile, after yesterday’s hike, the Bank of England’s base rate has risen from 0.1 percent last December to 1.75 percent now, sending mortgage rates skyrocketing.
This Mortgage Comparison Calculator at Money enables potential borrowers to quantify their monthly payments and show which loans they can apply for, based on home value and mortgage size.
First time buyers are struggling to save up for a deposit as house prices continue to rise
Is mother and father bank lending peaked?
Savills went on to highlight how a total of 198,000 first-time buyers would have sought financial help to obtain a mortgage in 2021, about 49 per cent of all first-time mortgage buyers, up from 131,000 in 2020 and 136,000 in 2019.
Mum and Dad’s bank contributed a total of £10.7bn to the purchase of these homes – more than double 2019’s, or 115 per cent – as a result of a tougher mortgage market since the start of the pandemic, which has particularly affected lending to owners of small deposits.
Frances MacDonald, of Savills, said: “Helping from Mum and Dad’s bank peaked last year as lenders exercised interest rate increases across high-value loans.
This means that more buyers are looking to take their first step on the housing ladder needed to take advantage of any family support to try and secure a deal at a lower price.
However, as ratios normalize over the course of this year, we can expect household assistance to ease back to levels seen before 2021 – at around £8.4 billion.
We also expect first-time buyer transactions to decline in 2022, in line with total transactions, so the proportion of those receiving assistance from the household — at 43 percent — will remain above pre-pandemic levels of 39 percent. in 2019 and 41 percent in 2018.”
Savills said the real estate market would ‘increasingly be confined to high earners and those who have been heavily subsidized’
Savills said Help to Buy – which supported 40,000 loans for first-time buyers and provided £2.9bn of financial assistance – took the total support received by first-time buyers to more than £13.6bn in 2021.
However, that will expire in March 2023, eliminating the subsidy that tens of thousands of homeowners have relied on.
Ms MacDonald added: ‘Despite strong levels of activity and price growth across the board, lenders continue to favor lower-risk and lower-risk loans for appreciation mortgages, which means it remains difficult for first-time buyers to climb up the ladder.
Those who have the option to turn to family members for help and have a secure job will find it much easier to move up the housing ladder.
“This means that the market will increasingly be limited to those with high incomes and those who have been heavily subsidized.”
Even though interest rates have risen, the main barrier to home ownership is still the ability for buyers to save against a deposit.
This is particularly true with the rising cost of living, so the role of the Mum and Daddy Bank will continue to be a key means of supporting those able to access it. This will be even more important from March 2023 when Help to Buy closes, as more first time buyers look to fill their deposit gap.