According to a new report, more than 50% of the £10 billion put forward for a deposit by first-time buyers in 2016 was sourced either from the Government’s Help to Buy scheme or from their parents. Approximately 150,000 first-time buyers looked to their parents for help in getting a deposit together for their home, with the value of this at £3.45 billion, more than 2 and a half times bigger than the same figure 10 years ago.
Why do first-time buyers need the support of parents?
First-time buyers are looking to their parents as a source of financial help when looking to buy their first home, more than ever before. There are three main reasons for this:
Rising Initial Deposits
In London, the average deposit of a first-time buyer has increased by an incredible 325% from 2007 to 2017, with averages deposits rising from £23,600 to £100,400. The income of first-time buyers, however, has only increased by 27% to £66,900 over the same period, proving why first-time buying has become such a difficult task.
Increased House Prices
Recent research shows that, over the last 10 years, house prices in London have increased by 78%, which has in turn benefited people already at the very top of the housing ladder. As well as this, those over the age of 65 have built up a large amount of equity over the last 20 years, and are responsible for £1.5 trillion of housing wealth.
The Office for National Statistics has also revealed that wages in London have fallen in real terms since 2007, meaning that when compared to the rise in house prices, it is no surprise that housing affordability is such a problem – especially for first-time buyers!
Many parents choose to help their children get onto the property ladder by downsizing their own home and funding their child’s deposit. By downsizing to a more suitable property for them, the parents are able to release some equity and really help their children.
Stricter Regulations and Lending Criteria
At the same time as increases to house prices, new regulations have been introduced that restrict banks on how much they are able to lend to those looking to buy a new home. The report shows that for lending at over 90% loan-to-value, the percentage of lending has considerably decreased to 3.9% in 2017, down from 14.1% in 2007. There has also been a set of stricter criteria introduced by the Financial Conduct Authority, meaning that extra checks are also needed to ensure that buyers can afford the monthly repayments.
What if first-time buyers don’t have wealthy parents?
It is widely thought that if you don’t have wealthy parents that own valuable properties, you will struggle to ever get onto that property ladder. However, there are certain elements to the situation that first-time buyers will be slightly more pleased about.
Firstly, Rightmove reported that the average London house price fell by 0.8% in September to £474,000. As well as this, the Help to Buy scheme is in full operation until at least 2021, meaning that an interest free five year loan of up to 40% of the price of a new build property is available up to the value of £450,000 or £600,000 for properties located in London. For first-time buyers, this truly is a very helpful way of getting onto the property ladder.
Author Bio
Hopwood House are property investment specialists, with a large portfolio of investment opportunities in the UK including property investments in Liverpool, Manchester, Newcastle and London.
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Daniel Peacock