Half of first-time buyers in their 20s receive financial help

Around half of first-time buyers in their 20s receive financial help to buy their home, with large consequences for their subsequent wealth accumulation according to research by the Institute for Fiscal Studies (IFS).

Those getting financial help receive an average of £25,000, making up almost half of their deposit. These wealth transfers help many of those who receive them to purchase a home sooner, while also enabling some buyers to put down a larger deposit as a proportion of the house price, substantially reducing their mortgage interest payments.

The research also found that homeownership rate for those aged between 25 and 39 whose parents owned their own home fell from 60% in 2009 to 51% in 2019. Among those whose parents rented their home, it fell from 40% to 22% over the same period. This means that the children of homeowners are now over twice as likely to be homeowners as the children of renters.

Over half of those with university-educated homeowning parents received transfers when buying for the first time, with receivers getting an average of around £35,000. Of those whose parents rented their home, only 29% drew on financial help when buying their home, with receivers getting an average transfer of just £11,000.

The IFC say that differences in financial resources, including assistance received, can explain almost half of the difference in home purchase rates between those with better-off and worse-off parents, holding incomes and ages constant.

Among first-time buyers receiving financial help, those in the South East received an average of around £31,000, while those in the Midlands received £18,000 on average and those in the North received £17,000.

For almost two-thirds of first-time buyers, each £1,000 they receive from parents increases the value of the house they can buy not by £1,000 but by £10,000, assuming they must put down a 10% deposit. This is because their low savings restrict the deposit they can put down and determine the most expensive property they can buy. Those first-time buyers at younger ages, with less-wealthy parents, and living outside of the South East are more likely to be held back by their low savings in this way. For these people, transfers have a more transformative effect on what they can afford.

The IFS says that rather than just helping people to be able to afford to buy, financial help is often used to put down a larger deposit. This tends to have very high financial returns because it reduces the interest rate paid on the whole mortgage.