- Half of first-time buyers have some family help
- Will this help stretched homeowners to withstand higher rates?
Of all the banks you’ve never heard of, Bomad is probably the biggest: according to a 2022 survey by YouGov, the number of first-time buyers getting financial help from the Bank of Mum and Dad has doubled since the turn of the millennium.
As the chart shows, more than half of people who purchased their first home between 2015 and 2019 got some family help, compared with 27 per cent of people between 2000 and 2004, as the chart shows. This is less a case of growing largesse, and more a case of growing necessity: estimates suggest that house prices have risen from around four times average earnings in the mid 1990s to more than eight times today.
May Rostom, head of the monetary analysis modelling team at the Bank of England (BoE), dug further into the impact of Bomad in an article for Bank Underground, a blog written by staff at the BoE, last month. Her research showed that parental contributions help children to buy homes four years earlier than those without them, reducing the average age of first homeownership from 30 to 26.
Unsurprisingly, those with family help are also able to buy more expensive homes. Rostom found that the average 26-year-old with Bomad help paid £254,000 for their first home – not far off the average UK house price. Those without family help settle for cheaper homes: at 26, the average non-Bomad first-time buyer purchases a property worth just under £180,000.
Interestingly, Rostom’s research suggests that these buyers wait over a decade – until age 37 – to buy a property worth the same amount as that bought by a typical 26-year-old with family help. This is a big difference: Rostom said that “whether and when you receive a gift can affect your entire home ownership trajectory – exacerbating the differences not just between generations, but within them”.
February research from the Institute for Fiscal Studies (IFS) backs this up. The think tank found that around a third of adults receive a gift or loan in their 20s or 30s. On average, these are small (around £2,000), although the largest 10 per cent are over £20,000. It will come as little surprise to hear that around half of the value was reported as being used for property purchase or improvement.
It will come as even less of a surprise to hear that these transfers are distributed unequally. Among young adults, the lowest-income fifth receive on average £30 a year in transfers, while those in the highest-income fifth receive almost £800 a year. The IFS also found that how these gifts are used depended on wealth and parental background. Those with home-owning parents are particularly likely to report using funds for a property purchase. Those on lower incomes are more likely than those who are wealthier to use gifts for driving lessons, to pay off debts or for educational expenses. According to the think tank, “this differing use of transfers is likely to have knock-on impacts on inequalities in wealth and living standards later in life”. But BoMaD help has far more immediate impacts, too.
Rostrum finds that, on average, first-time buyers with family support have deposits two-and-a-half times larger, and loans 30 per cent smaller than those without. Thanks to their bigger buffers, BoMaD borrowers will be sitting more comfortably as house prices dip. The latest Nationwide house price data revealed a 3.8 per cent annual drop in house prices, the steepest decline since July 2009. Analysts at Capital Economics are hardly a lone voice when they summarise: “as we expect mortgage rates to remain around their current level for the next 12 months, we expect further falls in house prices over the coming months”.
The BoE’s Rostrum also notes that BoMaD borrowers are “less leveraged” generally as well as having lower mortgage payments, leaving more leeway for them to save or spend their incomes on other things. As mortgage rates soar, new buyers could find that this leeway makes all the difference.
