The ‘Bank of Mum and Dad’ has become such a feature of the first-time buyer experience that we almost assume that most people taking their first tentative steps on the property ladder will have some form of financial support from their parents. However, Post Office Money has recently been investigating this assumed intergenerational support and our findings led us to ask a number of questions, specifically – how much does it really factor into the reality of most people’s buying experience and is it a sustainable model for the future?
The answer to these questions present some worrying considerations for the future of first-time buyers.
Firstly, it seems the financial support of parents has been greatly exaggerated. More than 40% of UK parents can’t provide any financial support and only the most fortunate 5% can provide the money to their children in full. It seems that less and less parents are going to have the ability to help their children onto the ladder in the future, as we see savings and assets decrease in subsequent generations. As such, the future generation of first-time buyers is unlikely to be able to rely on monetary help. Even if parents continue to support them in other ways – such as allowing them to live in their home rent-free – this will have a serious impact on who in our society is able to actually purchase property.
For the parents who are still able to provide financial help, in the future, it may come with some conditions. Insight from a behavioural futurist we worked with as part of our research, found that parents who provide money now are likely to need financial support themselves in retirement. This will become more common as the population ages and the amount of money needed to provide a comfortable retirement increases.
For those FTBs unable to get help, we expect to see a real change in their route to homeownership. We’re likely to see young people renting for much longer and seeking living arrangements that are more flexible – we’ve already seen an increase in shared housing, for instance, and I can only see this becoming more commonplace as time goes on. Young people are also likely to consider homes away from traditional city centres, as people hunt for areas which are more affordable and technology allows them to live in more remote locations. However, the road will continue to be a difficult one without industry intervention.
As a mortgage-provider, it’s clear to both myself and Post Office that the industry needs to tackle this issue now, in order to protect the next generation of first-time buyers. We need new and innovative products that cater for the reality of most young people’s situation.
We recently launched our own First Start mortgage which allows parents and loved ones to provide support in a different way, by acting as a co-borrower and guarantor for young people. We know this is only the beginning in a process of creating products that really impact people’s buying experience and we are committed to continuing our product development.