Post Office Money has partnered with a behavioural futurist to look at the findings of its recent report about the changing nature of the Bank of Mum and Dad.
The findings spell an uncertain outlook for the future of first-time buyers and a critical need for innovation in the market to mitigate the risk of a multitude of knock-on economic issues.
Analysis found that parent’s savings are likely to reduce over time. As the cost of deposits rise parents who are able to help are having to dip further into their saving pot to support their children on to the ladder. Currently, parents who can provide financial support are likely to give a third of their available financial wealth on average (£18,396).
If this trend continues there will be less money available to assist the younger generation. Currently, 41% of parents are unable to provide any financial assistance to their children and only 5% can support with a full deposit.
The report said that, with millennials stating, on average, they can only afford to save 7% of their wage for their first home, reliance on contributions from other sources has become essential for many. With 41% of parents not in a position to be able to help, the deposit deficit is growing and we’re already seeing a drop in (Youth) home ownership – and a rise in renting. 45% of millennials surveyed are currently renting – and 43% of them are perfectly happy to do so.
Parents who own property have more savings than those who rent (ave £54,177 vs ave £19,629) and so can better afford to help children buy (£18,611 vs £7,568)
In time, with fewer parents being able to provide assistance, the long-term impact is likely to be a growth in the ‘Housing Gap’, according to futurist analysis. This will have a huge impact on the gap between rich and poor if definitive steps are not taken to address this. Already, in high-demand areas homeownership is dependent on above average parental help – in London, for instance first-time buyer deposits now exceed £100,000 on average.
Parents who have helped their children financially are likely to have less available savings for their own financial future. Futurist William Higham predicts that as a result, they may need to rely on their children for financial assistance in later life, especially as the population ages and Post Office Money research supports this. 3% of all parents surveyed are currently contributing financially to parents/parents in law but 6% of younger parents are doing so (vs just 2% of 55+. However, as the current millennial generation ages they might not be able to provide housing assistance to their own children, as such steps need to be taken to keep the market sustainable.
Higham said: “As the research highlights, the challenge facing first-time buyers of how to get on the housing ladder is one that many families choose to tackle together. First time buyers using their parents’ available funds towards a deposit is a more efficient use of a family’s joint wealth– transferred at the point when it is most beneficial.
“However, with the data indicating that younger parents having fewer available savings, this system might not be entirely sustainable for future generations of buyers. This could have a wider impact on the UK economy and retirement incomes for future generations. This is something that will need to be addressed in the future.”
Owen Woodley, managing director, Post Office Money, said: “81% of parents we spoke to want to provide financial support to their children to help them get on the property ladder, but not all feel they are able to – primarily due to a lack of available funds (22%).
“We recognise that we need to respond, innovate and deliver products which are responsive to the changing needs of the wide range of these circumstances and our ‘First Start’ mortgage was developed specifically with this in mind.
“In a market where millennials can only afford to save 7% of their income towards a deposit, and therefore the average deposit could take 18 years to save for, aspiring homeowners will now, with the help of their family, be able to purchase a home that meets their needs now, a forever home now rather than a comprise which they quickly outgrow.”
In response to the changing needs of first-time buyers, Post Office Money has launched a new mortgage, First Start, designed to boost the borrowing power of first time buyers through the support of their families.
First-time buyers will now be able to apply for a mortgage with a sponsor, who will act as a co-borrower and have the option to be on the title of the property. The two highest applicant and sponsor incomes will be taken into account when assessing the level of borrowing, potentially increasing the amount a first-time buyer can borrow.