The proportion of first time buyers relying on inherited wealth or loans from the ‘Bank of Mum and Dad’ has reached an 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.
An 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 per cent in 1990 to 31 per cent recently. Many of those who do manage to buy eventually can only do so at an older age.
Increasingly, young people are relying on parents to get a foot on the housing ladder.
Some 34 per cent now turn to family for a financial gift or loan to help them buy their home compared to 20 per cent seven years ago. A further one in 10 rely on inherited wealth.
It is not only first time buyers who benefit from parental support – 12 per cent 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 UK, around a third 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 per cent of households without any formal educational qualifications over two 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 per cent until 2024/25 and then rise to nearly 40 per cent by 2029. If economic activity increases, the numbers of those relying on the ‘Bank of Mum and Dad’ is projected to reach a peak of 39 per cent at an earlier stage, by 2021/22, and then fall back.