UK’s Bank of Mum and Dad Runs Dry as Homebuyers Turn to Siblings

Britain’s often envied “bank of mum and dad,” used by first-time homebuyers to scrape together a mortgage deposit, is drying up.

(Bloomberg) — Britain’s often envied “bank of mum and dad,” used by first-time homebuyers to scrape together a mortgage deposit, is drying up.

Parents accounted for 72% of family members contributing to first-time buyer deposits in the year through July, according to analysis from broker Hamptons International using Skipton Building Society data. That’s down from 74% last year, and 80% in 2018, as new homebuyers increasingly call on siblings to help them pull together a deposit.

“As homeownership rates decline through the generations, younger parents today are less likely to be homeowners than their predecessors,” said Aneisha Beveridge, head of research at Hamptons. This “reduces their ability to withdraw equity from their home to pass on to children,” she added.

UK households are facing a stream of cost pressures triggered by pricey borrowing and inflation that’s slowly dropping back from generational highs. That’s led to a slump in first-time buyer sales, as wannabe homeowners remain stuck in ever-pricier rental contracts while mortgage costs surge.

Some 32% of mortgaged first-time buyers received family support toward their deposit in the first seven months of 2023, which is slightly higher than last year but down from 40% in 2017. While the proportion of parental contributions declined, the share of siblings supporting first-time buyers has almost doubled to 11% in the past three years, the data show.

“Should interest rates stay higher for longer, it will exacerbate the gap between what those with and without family help can afford,” Hamptons’ Beveridge warned. “Those without help will likely face saving up for longer and buying later in life or purchasing a smaller home.”

Read more: Decline of Biggest UK Housebuilder Fueled by Mortgage Plight

UK parents gift about £14 billion ($17.6 billion) a year to their children, according to the Institute for Fiscal Studies, often to help with the large deposits needed to get onto the housing ladder. More than half of the value of transfers are made by the wealthiest fifth of adults – mostly homeowners living in London and the South East — raising inequality concerns when it comes to homeownership. 

Over a third of first-time buyers with family backing put down a deposit of at least 20% so far this year, more than double the share of those purchasing without support. What’s more, London first-time buyers were gifted an average of almost £35,000 in the same period — over two times the national average of about £14,000.

“With high property prices, escalating rents and the cost-of-living squeeze further impacting people’s ability to save for a house deposit – it’s making it almost impossible for people to get onto the property ladder without a boost to their savings,” said Charlotte Harrison, interim chief executive officer at Skipton.

Read more: UK’s £17 Billion Bank of Mum and Dad Entrenching Inequality

Still, London homebuyers are less likely to receive mortgage support than elsewhere in the country. Fewer than a third of first-time buyers in the capital have been gifted a deposit contribution this year — just below the national average — compared with 40% in Yorkshire and The Humber, where house prices are much lower, according to Hamptons.

“Not everyone is lucky enough to have access to family wealth in this way,” Skipton’s Harrison said. “For many, despite potentially being able to pass a typical mortgage affordability check — it’s the lack of a deposit that’s holding them back from their home ownership aspirations.”

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