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Bank of Mum and Dad

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New figures have shown that nearly two thirds of first time buyers receive financial help. This can be attributed to the mortgage companies’ unwillingness to lend, leading to the requirement of high deposits in order to obtain a mortgage. Recent figures show the average deposit is currently 20% of the value of the property. This means that first time buyers will have to front an average of £26,000 deposit. Such a figure (especially in today’s economic climate) is unattainable for many of the younger generation, who are struggling just to make ends meet.

For many, the ‘Bank of Mum & Dad’ is the only available option. In the third quarter of 2011 64% of first time buyers were financially assisted. Compare this to the same 3 months in 2007 when 31% of first time buyers were assisted. Unsurprisingly the banking crisis has played a key role in these statistics.

It is arguable that many of these first time buyers would have relied on the ‘Bank of  Mum and Dad’ to some extent whether there was a banking crisis or not. The percentage increase can therefore be attributed to the fact that the total number of first time buyers has fallen from 500,000 in 2008 to 200,000 in 2011. This means that those people who have not got the luxury of parental backing will be unable to gain a mortgage on a property and therefore will continue to rent or live at home.

It should be asked what effect this has on the financial resources of the parents. With many being financially responsible for children who are in their 30’s and even early 40’s. With factors such as economic hardship, increased living costs and a greater life expectancy the elderly demographics’ finances are already particularly strained. The fact that many are still supporting their children can only increase this burden.

Another concern is the present young generation. Many people upon retirement see their home as financial security. With less people able to place themselves on the property ladder, Britain may be faced with a future generation of an elderly demographic who possess little or no financial security.

In order to be granted a mortgage, some have found an alternative to parental backing. This has been achieved through friends grouping together to jointly own a property. Although many may feel this is a highly risky manoeuvre in which the opportunity for problems is rife it does have its advantages. Case studies have shown that if a group of friends enter into the purchase of a property together and seek initial legal advice on the drafting of a deed that provides for the worst case scenarios then joint ownership is a viable route for a group of the younger generation to gain their foot on the first rung of the property ladder.

In conclusion even though housing prices have significantly fallen across Britain (excluding areas of London and the South East) first time buyers are still struggling. Factors such as high deposit requirements and financial uncertainty have not been conducive to a prosperous housing market. However these figures could have been significantly lower had it not been for parental support. With many parents using the equity from their home to support their children and mortgage companies not looking set to relax their high deposit requirements, it remains to be seen how much further borrowing can be taken from the ‘Bank of Mum and Dad’.

For additional information please contact Edward Worthy on 01245 228124 or worthye@gepp.co.uk

The above is not legal advice; it is intended to provide information of general interest about current legal issues.

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