In a heartwarming twist of fate, families across the nation are banding together to light up the housing market with their incredible generosity. A heartening report has revealed that parents and grandparents are gearing up to contribute an astounding £8.1 billion towards the dreams of first-time homebuyers this year.
This outpouring of love and financial support is set to be a game-changer, with close to half of all purchases made by those under the age of 55 in 2023 being funded by their beloved relatives. This figure marks a significant increase from the 35% reported in 2020 when a similar study was conducted. For the younger crowd, those under 35, this year’s share is expected to surge from just under half in 2020 to a remarkable 57%.
What’s lighting the fire under this wave of generosity? Rising interest rates, which have surged as the Bank of England raised them 14 consecutive times since December 2021, now resting at 5.25%. These rate hikes have had the effect of slicing tens of thousands of pounds from what the average borrower can comfortably afford.
The average amount of support from family members is expected to reach a heartening £25,600 this year, according to research by Legal & General (L&G). Yet, with this remarkable display of familial love comes a word of caution from Bernie Hickman, the chief executive of Legal & General Retail. He points out that while this support is touching, it also puts older generations at risk of facing financial challenges later in life.
Hickman shares, “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.”
But the love doesn’t stop there. Collectively, gifted funds towards home deposits are predicted to reach a monumental £10 billion by 2025, nearly double the amount seen in 2016. Many of L&G’s customers have even tapped into the equity in their own homes through lifetime mortgages to help their children and grandchildren take that vital step onto the property ladder.
However, it’s important to note that this beautiful display of familial support isn’t without its challenges. Research by L&G reveals that seven in ten people who have given money towards a family member’s home report that it has affected their own financial situation negatively.
Steve Webb, a former pensions minister, shares his wisdom, “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.”
Even among buyers aged 45 to 54, one in four relies on funds gifted by family members to afford their home purchases. This underscores the vital role families play in turning homeownership dreams into reality.
Aneisha Beveridge at Hamptons, an estate agent, adds, “Rapidly rising borrowing costs will pile more pressure on family members to provide financial support towards deposits. They are going to increasingly be calling for help from older households, whether that’s grandparents or parents.”
Despite growing pleas from younger buyers, demographic changes have meant fewer parents are in a position to offer this kind of help. Ms. Beveridge emphasizes, “As homeownership rates have declined through the last 50-60 years, that has limited parents’ ability to actually help their children.”
However, amidst these challenges, there’s another touching trend emerging. Research by Hamptons shows that financial help from siblings now makes up 11% of gifted money towards home purchases, nearly double the figure from six years earlier.
In addition, UK Finance data paints a picture of determination among those climbing the property ladder, with a record 9% of all home movers signing mortgage deals that extend well into their 70s. This reflects a shift from less than 1% a decade ago. Homeowners are spending an average of eight years in their first property before moving, suggesting that these brave souls in their early 40s are signing up for mortgages that will lead them to success despite the odds.
This heartwarming surge in extended mortgages is not limited to experienced homeowners. A record one in five first-time buyers are also signing up for mortgages lasting more than 35 years as they navigate a market marked by soaring interest rates.
A UK Finance spokesman reassures, “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.”
In these extraordinary times, the power of family bonds and unwavering love shines brighter than ever, guiding aspiring homeowners toward the doors of their dreams.