10 Dec 2018

Bank of Mum and Dad plays vital role in helping first time buyers

Bank of Mum and Dad plays vital role in helping first time buyers

Young people whose parents are property owners are far more likely to be able to buy a home these days than those whose parents rent their house.

And the Bank of Mum and Dad is playing a big role in funding this trend.

The Resolution Foundation says just 11% of young people whose parents have no property wealth have become homeowners, compared to more than a third of people whose mum and dad are among the wealthiest.

The think tank has calculated that the typical Bank of Mum and Dad pays out at least three times in life.

In a new report, it notes that measuring the direct effect of parental property wealth on children’s home ownership is difficult because the Bank of Mum and Dad actually pays out in other ways when it comes to children’s living standards.

As well as greater home ownership, young people with high levels of parental wealth are 74% more likely to have a degree than those without parental wealth, and typically earn over £500 more per month. Both of these factors are said to increase chances of home ownership.

The report finds that parental wealth has now become such a significant driver of young people’s home-ownership prospects that it is catching up in importance to more obvious drivers, such as how much young people earn.

The foundation comments that not everyone has been sharing in Britain’s wealth boom driven by soaring house prices and pension values.

It adds: "Indeed those same house-price rises have increased the deposits required to become a home owner, leaving millennials just half as likely to own by the age of 30 as the baby boomers were at the same age. Instead, they’ve experienced a fourfold increase in private renting.

"It would currently take a first-time buyer in their late 20s around 18 years to save for a deposit if they relied solely on savings from their own disposable income. That’s up from three years as recently as in the mid-1990s.

"Now obviously an 18-year wait is pretty close to saying it will never happen, so stepping into this breach has been the Bank of Mum and Dad, which is reportedly now the ninth biggest lender to first-time buyers."

The think tank says that, in the 1990s and early 2000s those with home-owning parents were twice as likely to become homeowners themselves as those without – today they are three times as likely.

It adds: "It’s obviously natural for parents to help their kids, but we also have a duty to understand where that leaves us as a society.

"And what lies behind these shifts is the long-term growth of wealth at a much faster rate than income. The implication is that incomes can no longer provide a route to wealth – however frugal you are – that they once did."

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