UK

Families to fund record £8.1bn toward first-time buyer purchases

Eir Nolsoe
Sun, 27 August 2023

A couple view properties for sale in an estate agents window

Parents and grandparents are facing a retirement cash crunch as they prepare to contribute a record £8.1bn towards younger buyers’ house purchases this year, a report has warned.

Money from relatives will help fund close to half of all purchases by under-55s in 2023, according to research by Legal & General and the Centre for Economics and Business Research (Cebr).

It is a significant jump from 35pc in 2020, when the research was last carried out. For under-35s, the share is expected to jump from just under half in 2020 to 57pc this year as rising interest rates push up mortgage payments.

The Bank of England has raised interest rates 14 consecutive times since December 2021 to 5.25pc, wiping tens of thousands of pounds off what the average borrower can afford.

The average amount of financial support from relatives is expected to hit £25,600 this year, L&G’s research found.

Bernie Hickman, chief executive of Legal & General Retail, which has 12 million policyholders, warned the record sums put many older people at risk of running out of money later in life.

He said: “Our research clearly shows that gifting or lending money to loved ones to get on the property ladder has noticeably impacted [the givers’] finances.

“There’s clearly a risk of depleting their own financial resources to the extent that it could impact on their own ability to live comfortably.”

Collectively, gifted funds towards home deposits are predicted to reach £10bn by 2025, nearly twice as much as in 2016.

Many of L&G’s customers have released equity from their property through lifetime mortgages to help their children or grandchildren get on the property ladder, Mr Hickman said.

He added that Britain’s housing market was not only perpetuating inequalities but was also creating “risks for the older generations”.

Research by L&G found that seven in ten people who had given money towards a family member’s home said it had left them in a worse financial position.

Steve Webb, a former pensions minister, said: “The big risk for parents on a tighter budget is that they might under-estimate their own retirement needs.

“It is important to have both regular income and a certain amount of capital. You might think that you can live comfortably enough from week to week, but what happens when the car needs replacing or the boiler breaks?”

Even among buyers aged 45 to 54, one in four relied on funds gifted by family to afford their purchase, L&G found.

Aneisha Beveridge at Hamptons, an estate agent, said rapidly rising borrowing costs would pile more pressure on family members to provide financial support towards deposits.

She said: “They are going to increasingly be calling for help from older households, whether that’s grandparents or parents.”

Ms Beveridge warned that despite growing pleas from younger buyers, demographic changes meant fewer parents were in a position to help out.

She said: “As homeownership rates have declined through the last 50-60 years, that has limited parents’ ability to actually help their children.

“I think we’re starting to see some of that play out now. That has big consequences for saving pots for healthcare and general day-to-day living.”

Separate research conducted by Hamptons found that financial help from siblings now makes up 11pc of gifted money towards home purchases, nearly twice as much as six years earlier.

Meanwhile, UK Finance data showed almost one in ten people climbing the property ladder are signing mortgage deals that will leave them paying off debts well into their 70s.

The trade body said a record 9pc of all home movers took out loans of 35 years or more in June, up from less than 1pc a decade ago.

Homeowners spend an average of eight years in their first property before moving, according to Zoopla.

This suggests home movers in their early 40s are signing up for mortgages that will leave them stuck in a debt trap until their late 70s.

The data also showed a record one in five first-time buyers are also signing up to mortgages of more than 35 years as interest rates soar.

A UK Finance spokesman said there had been a “rapid increase in the proportion of mortgage customers borrowing over a longer term in order to stretch their affordability” over the past year, though this was starting to plateau.

They added: “If the mortgage runs its full term this does mean the customer ends up paying more overall than they would over a shorter term, although the majority of first-time buyers redeem their mortgage well before this, usually when they move house.”