Credit, Collections & Insolvency News
The Bank of Family is expected to provide record levels of financial support to the property market this year, with families predicted to contribute £8.1 billion to homebuyers according to research by Legal & General and the Centre for Economics and Business Research (Cebr). This funding is set to support 47% of all homes purchased by buyers under the age of 55. The average amount given by each family is expected to be £25,600 and will support 318,400 property purchases in 2023.
In previous years Legal & General has logged this lending as the ‘Bank of Mum and Dad’, but this year the business will be referring to the research as the ‘Bank of Family’, as the term more accurately reflects the contribution of other members and the breadth and diversity of modern family structures.
Family contributions are set to climb to a staggering £10 billion by 2025, according to the research. This increasing reliance on financial support from parents, grandparents, other family, and friends underlines the challenges faced by aspiring buyers who don’t have access to this support. The majority of recent or prospective Bank of Family recipients said they would have to delay their home purchase without financial help from loved ones. More than one in five (21%) say they would have to delay their purchase by more than five years and one in 10 first-time buyers would not be able to buy a home without assistance from the Bank of Family.
In 2023, the Bank of Family will provide support for almost half (47%) of house purchasers under the age of 55, and a majority (58%) of financial support from the Bank of Family currently goes to first-time buyers. These groups are major recipients of Bank of Family funding, likely because they are comprised of buyers who might otherwise struggle to save the necessary deposit for home purchase.
Legal & General’s research found that 77% of buyers receiving family assistance directed at least a portion of their funding towards a deposit. This is perhaps not surprising given the fact that average household savings have not kept pace with large rises in deposit requirements, given significant house price inflation.
Families are not just offering monetary aid though. Many are also providing indirect financial support to help loved ones boost their savings pot. For example, almost a third (31%) of parents and grandparents have welcomed adult family members to live with them to make it easier to save for a deposit, while a further 37% would be willing to house their adult children in the future. Legal & General estimates that buyers save an average of £24,900 when living with family members, which they can put towards their deposit. However, this support is likely another key factor exacerbating the gap between those with and those without family wealth when it comes to homeownership – not only does this support rely on households being able to afford additional residents, but also having the space to adequately house them.
Bernie Hickman, CEO, Legal & General Retail said “Family wealth is increasingly becoming a prerequisite for homeownership, effectively locking some groups out of the housing market for years while they save for deposits, or even altogether. While family gifting has always played a prominent role in the UK housing market, our study shows that the value of those contributions has risen by more than a quarter on pre pandemic levels.
“An increasing reliance on family members isn’t only an issue for those seeking to buy – it is important to acknowledge the financial strain it can place on the giver, particularly if they are undertaking this commitment without financial advice. By dipping into savings and pensions, family members may be compromising on their own retirement incomes. A housing system which relies too heavily on gifted deposits not only perpetuates inequality today, but could create risks for the older generations of the future.”
Bank of Family support is also highly regional, with over two-thirds (67%) of all homeowners in London receiving parental support to purchase their homes. Bank of Family recipients in London received £30,200 on average to support their transaction, only beaten by those in the East of England who received an average of £32,100.
However, elsewhere aspiring buyers are less reliant on the Bank of Family. In the East Midlands and West Midlands, people received the least on average from friends and family, at £20,000 and £19,800 in each region, respectively.
The family lending and gifting patterns revealed in the report often reflect regional variances in house prices and affordability, as well as income and wealth inequality, across the UK. These disparities have been analysed in more detail in Legal & General’s Rebuilding Britain Index, which found that the ratio of average house prices as a percentage of income is highest in London, followed by the South East, South West, and East of England.
Another factor contributing to the ongoing rise in Bank of Family lending is the enduring impact of the pandemic and the ongoing cost-of-living crisis, as outlined in Legal & General’s Deadline to Breadline report.
According to the report, high levels of inflation have meant that one in three households has less than £500 left after paying for their basic outgoings each month and 6% of households are left with nothing.