Parents are giving inheritances early to their children as interest rate rises and stricter mortgage rules push home ownership out of reach for many young people.
The so-called “Bank of Mum and Dad” has been increasingly relied upon by first-time buyers amid turmoil in the mortgage market, according to research by estate agency Savills.
A survey of 350 of Savills agents in December found a third had recorded an increase in buyers relying on parents to help fund their property purchase over the previous six months. The company has forecast almost half of first-time buyers will get financial help from their parents over the three years to 2024.
A separate survey of more than 1,500 of the company’s customers found a fifth were more inclined to support family members onto the property ladder because of the economic fallout of last year. This rose to almost a third amongst those aged over 60.
Karen Noye of Quilter, a mortgage broker, said: “We have seen parents give what would potentially be inheritance to their children earlier to help them get on the property ladder, or in some cases ease the burden of the cost of living crisis.”
Frances McDonald, of Savills, said parents had stepped in after mortgage lenders became more cautious last year, despite their own finances coming under pressure from the biggest cost of living crisis in a generation.
Ms McDonald said: “First-time buyers are finding it more difficult to get on the property ladder, so those who have the option will be increasingly turning to family for additional support.
“Help with a bigger deposit will open up greater mortgage choice and also help to secure a lower interest rate.”
The average house price rose by £51,000 in the two years to October 2022, reaching a record high of £296,000, according to official data from the Office for National Statistics.
Soaring prices hammered affordability just as rising interest rates made borrowing costs more expensive. The average two-year fixed-rate mortgage for a borrower with a 5pc deposit has more than doubled in the past year, rising from 3.06pc in January 2022 to 6.13pc at the beginning of this month.
The typical two-year fix for a borrower with a 10pc deposit climbed from 2.55pc to 5.89pc in the same period, according to analyst Moneyfacts. A borrower with a £150,000 loan would need to find an additional £417 a month to afford the difference in rates.
The fallout means first-time buyers must either reduce their budget, save for longer or seek financial help elsewhere.
Gary Boakes, of broker Verve Financial, said: “It has been rare not to meet first-time buyers who were not having help from family last year, especially Mum and Dad, with support ranging from £5,000 to £120,000.”
It coincides with the end of the Help to Buy equity loan scheme, which closed to final applications in October last year and will come to an end after March. The Government scheme supported around 40,000 first-time buyer purchases a year.