Thousands of young people buy their first home each year with the help of a gift or loan from the so-called Bank of Mum and Dad - but what if you don't have access to that help? Is it still possible for the average twenty-something to get on the housing ladder without it?
What is the Bank of Mum and Dad?
The latest figures today rank the Bank of Mum and Dad as the sixth-largest mortgage lender in the UK, bigger than the likes of Yorkshire Building Society and TSB. The bulk of this is made up of one-off cash gifts from family members to help their offspring into the property ladder either by contributing towards all or part of the deposit or money for associated fees or stamp duty, but also includes loans and other forms of financial support.
Britain’s housing crisis
Parents helping their children onto the property ladder is not a new concept, but one that has only really taken off in the last 10 years or so since the current housing crisis took hold. These problems, while influenced by a multitude of different factors, have been compounded by a failure of government to build enough homes to cope with a rising population and high levels of immigration – the rise of the Bank of Mum and Dad is, more than anything, a symptom of what has gone wrong in Britain’s housing market.
Indeed, the scale of the challenge shouldn’t be underestimated – experts agree that England alone needs around 300,000 new homes each year; despite the government pledging to deliver a million homes by 2020, only 222,000 new homes were built in 2017/18 – at least 100,000 under target.
The housing crisis has created a situation where potentially wealthy or cash-rich families can afford to help their children into homes of their own while poorer families are trapped in social or private rented housing with no tangible way of saving for a deposit and achieving home ownership in the near future.
A step back in time
Cast your mind back to 1995. Or, if you happen to be under the age of 20, try to imagine it at least – back in those days, the average 25-34 year old on the most average income most likely owned their own home. In fact, home ownership rates among this age group were at a giddy 65% - today, that figure is just 27%. This illustrates the collapse in home ownership among young people and goes some way to explaining how the Bank of Mum and Dad has risen to such prominence.
So, what if you don’t have the Bank of Mum and Dad behind you? Is it still possible to get a mortgage? It all depends on where you live, what you earn and how much you can save.
The journey to owning your own home
If a couple in the North East of England saved £150 between them each month for four years – which is no small feat for some - they would end up with £7,200 saved, comfortably enough for a 5% deposit on the average* terraced house in that area.
Strikingly, if a couple in London saved the same amount after four years they would still be £13,600 short of scraping over the minimum 5% deposit for a flat or maisonette. The story of the housing crisis is epitomised by sharp regional differences across different parts of the country, where potential buyers in London and the South East are finding themselves having to move away or rely on the Bank of Mum and Dad in order to be able to afford somewhere to live.
Of course, on paper it always looks easier to save for a mortgage than it actually is. It means sacrifices, perhaps missing out on that holiday abroad or going on a few less nights out on the town. If you’re in debt or financial difficulties, or you have young children, the demands on your wallet can be never-ending – it’s important to prioritise and make sure you are meeting your commitments while you save for a deposit.
And - this may sound like stating the obvious – if you’re after your own place, remember to start small! Many prospective buyers will want to jump straight into a four bedroom home and start a family – for most of us, that’s just now how it works. Be prepared to compromise - consider buying a small flat or a little ‘two-up-two-down’ terrace to start off with, and if it’s on the cheaper side because it needs a little bit of TLC, all the better!
Where to go next
If you’re wondering whether you’ll ever be able to get on the housing ladder, it might be worth seeking further advice to see what your options are and if (or when) you might be ready to buy your first home.
At Ipswich Building Society we offer free no-obligation advice from our dedicated team of Mortgage Consultants. If you’re eyeing up a property in England and Wales or just want to chat about your options give us a call on 0330 123 0723.
*Correct as at May 2019