The proportion of first-time buyers relying on inherited wealth or loans from the ‘bank of mum and dad’ has reached a historic high and the trend looks set to continue, new research by the Social Mobility Commission has revealed. The Commission warns that the 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.
Analysis of government and housing market data by researchers from the University of Cambridge and Anglia Ruskin University has found that the proportion of young people embarking on home ownership has fallen dramatically. For 25- to 29-year-olds, home ownership has fallen by more than half in the last 25 years from 63% in 1990 to 31% most recently. Many of those who do manage to buy eventually can only do so at an older age.
Increasingly, young people are relying on the bank of ‘mum and dad’ to get a foot on the housing ladder. Over a third of first-time buyers in England (34%) now turn to family for a financial gift or loan to help them buy their home compared to 1 in 5 (20%) 7 years ago. A further 1 in 10 rely on inherited wealth. It is not only first-time buyers who benefit from parental support – over 1 in 10 (12%) of existing owners are also benefitting from a gift or a loan when buying a new home. With housing tenure remaining one of the main ways in which wealth is held and transferred through generations, the report warns that difficulties in buying homes are becoming a barrier to improving social mobility in the UK.
In the United Kingdom, around a third (30%) of households with dependent children currently hold assets that could be used towards a deposit for the purchase of a home. However, in respect of social mobility, the report notes that around only 10% of households without any formal educational qualifications 2 successive generations feel able to assist their children with homeownership costs. The report also finds that first time buyers who receive money or a loan from their parents can buy 2.6 years earlier than those who do not. In London, this figure rises to 4.6 years. The average income of households in London 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% until 2024 to 2025 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 to 2022, and then fall back.
The Rt Hon 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.”
In its recent State of the Nation 2016 report, the commission recommended that the government should:
- commit to a target of 3 million homes being built over the next decade with one-third – or a million homes – being commissioned by the public sector
- expand the sale of public sector land for new homes and allow targeted house building on green belt land
- modify its starter home initiative to focus on households with average incomes and ensure these homes when sold are available at the same discount to other low-income households
- introduce tax incentives to encourage longer private sector tenancies
- complement the Heseltine Panel’s plans to redevelop the worst estates with a matching £140 million fund to improve the opportunities social tenants have to get work.
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 a historic high of 34%.”
“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.”