The UK’s Struggling Property Market – The Bank of Mum and Dad and Soaring House Prices

Introduction

In the past, owning a home symbolized a passage into adulthood, but the dream of homeownership is increasingly slipping away for many in the UK. The skyrocketing house prices, outpacing stagnant pay rises, have created an imbalanced housing market, making it increasingly challenging for first-time buyers to enter the property ladder. In this blog post, we’ll explore the repercussions of the UK’s inflated property market, the growing reliance on the “Bank of Mum and Dad,” and how these factors contribute to rising inequality and falling homeownership rates.

The Bank of Mum and Dad: A Growing Trend

The housing market in the UK has witnessed a surge in parental assistance for first-time buyers. A staggering 63% of first-time buyers in the current year are expected to receive help from their parents, the highest level since 2011, according to estate agents Savills. Last year, about 46% of all first-time buyers with mortgages received family assistance in securing a mortgage, with parents collectively contributing a significant £8.8bn. This trend is a clear indication of the struggle young people face in entering the property market independently.

The Pain of Saving for a Deposit

Soaring house prices have rendered homeownership unattainable for many. Housing affordability has plummeted, reaching the lowest level in 150 years, with house prices now standing at more than nine times the average salary. As a result, aspiring homeowners need larger deposits to secure feasible mortgage repayments. The average first-time buyer now requires a 25% deposit, amounting to around £63,500, compared to an average deposit of under £25,000 back in 2005. Meanwhile, average mortgage loans have doubled in size, making the goal of homeownership increasingly distant.

Rising Mortgage Costs: The Stumbling Block

Mortgage costs have escalated in recent years, adding to the burden of first-time buyers. Since June 2021, average two-year mortgage rates have surged from 2.59% to 6.8%, and five-year rates from 2.82% to 6.32%. Many economists anticipated that soaring rates would deflate house prices, easing the financial pressure on buyers. However, the decline in house prices has been minimal, leaving homeownership an elusive dream for most. The situation is even more dire for first-time buyers with 90 or 95% mortgages, as the available mortgage rates remain substantially higher for them.

The End of Help to Buy and Its Impact

To aid buyers in saving for a deposit, the government introduced the Help to Buy scheme in 2013, allowing first-time buyers to secure a property with just a 5% deposit. However, this scheme has since ended, resulting in an increased need for parental support. Critics argue that Help to Buy has contributed to inflated house prices, further exacerbating the affordability crisis. The lack of government support for aspiring homeowners only serves to widen the gap between those with parental wealth and those without, diminishing social mobility.

Threats to Social Mobility and Falling Homeownership Rates

The growing reliance on parental support to enter the property market is undermining social mobility in the UK. Individuals with wealthier parents are more likely to receive gifts, leading to a disproportionate advantage in homeownership. As a consequence, younger people are forced to remain in the rental sector for longer, straining their finances and reducing their financial resilience later in life. Falling homeownership rates among younger generations have also led to older first-time buyers, taking out the longest-ever mortgage terms.

Impact on Pensions and Retirement

The prolonged struggle to buy a home is raising concerns about individuals’ ability to save for retirement. With the rising cost of housing, it is becoming increasingly difficult for young people to allocate funds to pension savings. As a result, the current generation may be forced to downsize to finance their retirement. Some individuals may even face the prospect of renting in old age, jeopardizing their retirement finances.

Conclusion

– UK’s housing market faces challenges as property prices outpace pay rises
– Difficulty in entering the property ladder without parental inheritance or financial assistance
– 63% of first-time buyers rely on parents’ help, reaching the highest level since 2011
– Soaring house prices demand larger deposits for feasible mortgage repayments
– Average first-time buyer now requires a 25% deposit, compared to 2005’s average of under £25,000
– Rising mortgage costs add to the burden, with average rates increasing significantly since 2021
– The Help to Buy scheme ends, increasing the need for parental support to save for a deposit
– Reliance on parental support hampers social mobility, creating inequality in homeownership
– Falling homeownership rates leave younger people in the private rental sector for longer
– Prolonged struggle to buy a home raises concerns about saving for retirement and pension contributions.

The UK’s inflated housing market and the reliance on the “Bank of Mum and Dad” are causing significant socio-economic consequences. The unaffordable property prices are preventing many young people from achieving homeownership, leading to a rental crisis and reducing social mobility. The government must take proactive steps to address this issue, encouraging fair and affordable housing opportunities for all, ensuring a brighter future for the nation’s younger generation.