Legal and General’s 2018 ‘Bank of Mum and Dad’ report found that the number of first time home buyers benefiting from parental help rose to its highest ever level last year. 27% of all property buyers, up from 25% in 2017, received financial assistance totalling a whopping £5.7 billion from friends and family last year. 2018 research commission by Keepmoat Homes showed 48% of first-time buyers had help raising their deposit. If it were incorporated, the ‘Bank of Mum and Dad’ would be the ninth largest lender in the UK.
But is delving into savings, investments or your own property’s equity to give your offspring a leg up onto the housing ladder a good idea? There are arguments for and against.
According to Nationwide data on average UK property prices, in 1977 the inflation-adjusted ‘real’ price of a home was £79,047. In 1995 it was £96,879 and in the year 2000 £135,503. By 2007 that had soared to £250,354. And even though average adjusted prices were down to £214,178 by 2018, they were even higher than 2007 levels in some parts of the country - notably London and the South East.
That trend has helped many in the 40+ demographic to amass considerable bricks-and-mortar wealth. Of course, hard work and sacrifices were still involved for most but the fact of the matter is that the real cost of the deposit for a first property has risen significantly.
The Freemoat Homes research discovered that in the 1960s it took the average buyer two years and one month to save the deposit for their first home. That rose to 3 years and 1 month in the 1980s and 4 years by the 1990s. From 2011 onwards, saving that deposit has taken a little over 5 years with the annual English Housing Survey reporting the typical deposit paid by a first-time buyer in 2017/18 was £44,635. The average age of the first time home buyer is also now 30 compared to 23 in the 1960s.
In that context, it is perfectly understandable why so many parents feel like they should, if they can, offer their kids the financial assistance that will make getting that first deposit together a little less of a slog. But there are two big questions to consider before doing so.
Do they really need help? The first question to ask is how much do your kids or dependants actually need your financial assistance? Averages are just that – averages. Your children might have particularly well-paid jobs, other sources of income or live in a part of the country where property prices are more accessible. They might be able to come up with their own deposit without great hardship. If that’s the case, you might want to consider letting them stand on their own two feet. There’s merit in that too.
Can you afford it? If you do come to the conclusion that, in an ideal world, your offspring could benefit from some financial assistance in acquiring their first home, you also have to carefully assess your own finances. How much can you comfortably afford?
While helping children is a natural impulse, they’ve got the larger part of their lives ahead of them to help themselves.
Compromising your own financial stability or standard of living in later life isn’t going to help anyone in the long term. So carefully assess where the money is going to come from, if it is to be paid back, under what conditions and if delays or difficulties in making repayments might place your relationship or finances under unnecessary strain.
Ultimately, the decision of whether or not you want to or are able to represent a local branch of ‘The Bank of Mum and Dad’ is a very personal one. It depends not only on your own and your children’s financial circumstances but also on personal values and relationships. There’s no right or wrong answer. But do take care to carefully weigh up the pros and cons and make sure any conditions attached to financial help towards a first home deposit are understood and gladly accepted by both parties.