In the ever-competitive property market, one major player is stepping up its game this year—the Bank of Mum and Dad. Recent analysis reveals record levels of financial support pouring into the housing market, providing a lifeline for younger generations aspiring to homeownership.

The Bank of Mum and Dad: A Key Player

According to research conducted by Legal & General, families are expected to assist in financing 47% of all homes purchased by individuals under the age of 55 this year. This figure encompasses support from not only parents but also grandparents and even siblings.

Record-Breaking Assistance

In terms of numbers, family funding is projected to facilitate over 318,000 property purchases, marking the highest level since L&G began tracking family lending in 2016. The average amount contributed by each family is expected to reach £25,600 this year, with total lending anticipated to soar to £8.1 billion in 2023—a 50% increase since 2020.

The total value of properties acquired with family assistance is estimated to reach a staggering £124.6 billion this year. Bernie Hickman, the CEO of L&G Retail, notes that “family wealth is increasingly becoming a prerequisite for homeownership,” locking certain groups out of the market.

Future Outlook: Growing Reliance on Family Support

L&G’s research suggests that reliance on family assistance for home purchases will only continue to grow. By 2025, family contributions are projected to reach a staggering £10 billion annually, facilitating 357,200 home purchases each year. This increasing dependency on family funding underscores the challenges faced by aspiring homebuyers without access to such support.

Impact on Aspiring Buyers

For many, this financial support is a lifeline. The majority of buyers who have received assistance from their families stated that without this help, they would have had to delay their home purchase. Some even indicated they would have had to postpone their purchase for more than five years, and for first-time buyers, homeownership might not have been possible at all.

Bigger Deposits and More Expensive Homes

While family assistance allows first-time buyers to step onto the housing ladder, it also enables them to make larger down payments and purchase more expensive properties. According to Hamptons, the average first-time buyer who received family help paid £6,500 more for their home this year compared to those without additional contributions.

Future Outlook and Potential Challenges

While the proportion of first-time buyers receiving support from the Bank of Mum and Dad is predicted to increase, the total number of first-time buyers is expected to decrease to 200,000 in 2023. Nevertheless, parents are still projected to provide approximately £26 billion in support over the next three years (2023 to 2025).

The end of government schemes like Help to Buy suggests that an even greater proportion of buyers will depend on family assistance to enter the property market. This financial lifeline allows younger generations to take their first steps toward homeownership but raises concerns about the widening gap between those with family support and those without.

Balancing Support and Financial Stability

Parents and grandparents often provide this support willingly, with less than a quarter expecting reimbursement. However, it’s crucial to avoid jeopardizing your financial future when assisting your children. Here are five key questions to consider:

1. Should I gift or loan?

Decide whether gifting or loaning is the better option based on your financial situation and family needs. Clear communication is essential, and in the case of loans, consider creating a legal agreement.

2. Will I have to pay tax?

Understand the tax implications of your financial support, including inheritance tax, capital gains tax, and income tax. Seek professional advice when necessary.

3. What if I’m asset-rich but cash poor?

Explore options like equity release or guarantor mortgages to unlock the value in your home and support your children’s homeownership dreams. Seek advice from experts in these fields.

4. How can I protect my wishes?

If concerned about potential disputes or unintended beneficiaries, consider legal safeguards like a deed of trust to protect your financial gift or loan.

5. How can I ensure any gift is affordable?

Use cash flow modelling to assess the long-term financial impact of your support. This tool can help ensure that both you and your children maintain financial stability.

Navigating the path of financial support for your children’s future can be complex, but careful planning and professional guidance can help you strike the right balance between meeting their needs and securing your financial well-being.