The increasing number of first-time buyers turning to the Bank of Mum and Dad in order to get on the property ladder is damaging social mobility, a new report claims.
New research by the Social Mobility Commission has revealed that the proportion of first-time buyers relying on inherited wealth or loans from the Bank of Mum and Dad has reached an all-time high.
The Commission said that this increasing trend will have damaging consequences for social mobility as young people on lower incomes are finding it almost impossible to get a foot on the housing ladder.
Alan Milburn, chair of the Social Mobility Commission, said: “Home ownership helps unlock high levels of social mobility but it is in free-fall among young families. Owning a home is becoming a distant dream for millions of young people on low incomes who do not have the luxury of relying on the bank of mum and dad to give them a foot up on the housing ladder.
“The way the housing market is operating is exacerbating inequality and impeding social mobility. It is welcome that the Government recognises the growing problem people face in getting on the housing ladder. A major national effort is needed to expand opportunities for home ownership and will require more radical action on housing supply.”
The research found young people are increasingly relying on the Bank of Mum and Dad to get a foot on the housing ladder, with 34% now turning to family to help them buy their home compared to just 20% seven years ago. A further one in 10 rely on inherited wealth.
It is not only first-time buyers who benefit from parental support – 12% of existing owners are also benefitting from a gift or a loan when buying a new home.
The proportion of young people embarking on home ownership has fallen dramatically.
The research found that home ownership for 25-29 year-olds has fallen from 63% to 31% since 1990, while 30% of households with dependent children currently hold assets that could be used towards a deposit.
The report notes that around only 10% of households without any formal educational qualifications over two successive generations feel able to assist their children with homeownership costs.
First-time buyers who receive money or a loan from their parents can buy 2.6 years earlier than those who do not, with this figure rising to 4.6 years. In London, the average income of households who rely on support from parents is £40,900 compared with £42,400 for those who do not.
Researchers project that the number of future first-time buyers will rise slightly in the short term, then fall gradually over the next 25 years. The speed and the extent of the rise and fall will be determined by the robustness of the economy.
If economic activity weakens, the proportion of first-time buyers relying on their parents is set to stay at the current level of 34 % 2024/25 and then rise to nearly 40% by 2029. If economic activity increases, the numbers of those relying on Bank of Mum and Dad is projected to reach a peak of 39% at an earlier stage by 2021/22 and then fall back.
The report’s lead author, Dr Paul Sanderson, from Anglia Ruskin University, said: “Over the past few decades, pressure on housing affordability has been increasing, leading to a significant decrease in the proportion of young people entering home ownership. Those who do manage to become first-time buyers, tend to do so at a later age than the previous generation.
“Affordability problems mean that parents and other family members have a critical role in assisting their children to buy their first home, either by means of a gift of money or a soft loan. The latest proportion of first time-buyers fortunate enough to have families who can provide this sort of help has reached an historic high of 34 per cent.
“Going forward, the gap is likely to continue between those in the UK who can acquire that most significant of financial assets, the family home, and those who cannot. Only better-off young people and those who have parents who have already accumulated housing wealth are likely to be able to consider home-ownership without radical changes to the housing market.”
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