Financial support from family members expected to provide £8.1 billion to homebuyers
This could turn out to be the busiest year ever for families’ financial assistance on property purchases – they are estimated to be supporting the majority of first-time homebuyers.
Family support is expected to help fund a record 318,400 housing transactions, a majority of which will benefit first-time buyers, according to financial services group Legal & General.
Following an understandable dip in lending during the COVID-19 pandemic lockdowns, the value of financial support offered by families resumed its dramatic growth, new research from Legal & General and the Centre for Economics and Business Research has revealed.
The average amount of money provided by family members to relatives purchasing a home is expected to hit £25,600 this year, while total lending is expected to climb to £8.1 billion, up 50% on 2020. The total value of properties bought with this assistance, which has ballooned over the last seven years, is predicted to reach £124.6 billion this year.
According to the latest research, this figure is set to climb to a staggering £10 billion by 2025.
The “Bank of Family” is funding £8.1bn in house purchases. But for those without family support, home ownership can feel out of reach.— Legal & General (@landg_uk) August 28, 2023
We’re making investment choices that could help unlock the door to the market for younger buyers.#InclusiveCapitalismhttps://t.co/1YzH397Xcf pic.twitter.com/6MqxhCZhlT
In previous years, Legal & General referred to this lending as the ‘Bank of Mum and Dad’, but this year, it said it would be calling it the ‘Bank of Family’ as the term more accurately reflected the contributions of other family members.
These contributions will provide support for almost half, or 47%, of house purchasers under the age of 55 this year. A majority, or 58%, of financial support from families currently goes to first-time buyers. Legal & General said these groups were the major recipients of this funding, likely because they were comprised of buyers who might otherwise struggle to save the necessary deposit for home purchase.
The research also found that families were not just offering monetary aid, with many also providing indirect financial support to help loved ones boost their savings pot. Almost a third, or 31%, of parents and grandparents have welcomed adult family members to live with them to make it easier to save for a deposit, while a further 37% would be willing to house their adult children in the future.
“Family wealth is increasingly becoming a prerequisite for homeownership, effectively locking some groups out of the housing market for years while they save for deposits, or even altogether,” commented Bernie Hickman (pictured), chief executive at Legal & General Retail. “While family gifting has always played a prominent role in the UK housing market, our study shows that the value of those contributions has risen by more than a quarter on pre pandemic levels.
“An increasing reliance on family members isn’t only an issue for those seeking to buy – it is important to acknowledge the financial strain it can place on the giver, particularly if they are undertaking this commitment without financial advice. By dipping into savings and pensions, family members may be compromising on their own retirement incomes. A housing system which relies too heavily on gifted deposits not only perpetuates inequality today, but could create risks for the older generations of the future.”
Hickman added that the ongoing rise in famly lending was the enduring impact of the pandemic and the ongoing cost-of-living crisis. According to Legal & General’s Deadline to Breadline report, high levels of inflation have meant that one in three households had less than £500 left after paying for their basic outgoings each month and 6% of households are left with nothing.
“Our latest Bank of Family research shows just how the high cost of housing, particularly in London and other major cities, continue to shape the UK,” he pointed out. “There are clear differences between urban and rural areas, and the lack of affordable housing in some areas is a legacy that will impact many peoples’ lives for years to come.
“Gifting a deposit is an incredibly kind and generous thing for those who can afford it, but it shouldn’t be a necessary part of the homebuying process.”