Families give record sums to help relatives to buy a home

Families are expected to hand a record £9.2 billion this year to relatives to help them to buy a home as rising rents and more expensive mortgages push up the barriers to property ownership.

It is a sharp rise from the £8.1 billion gifted by parents, grandparents and other relations last year and will take the average contribution from families to £27,400, up from £25,600 in 2023, according to research by Legal & General, the savings, retirement and insurance group, and the Centre for Economics and Business Research, a think tank.

Financial support from families is expected to contribute to 42 per cent of all properties purchased by buyers aged under 55 this year, they said. These gifts are forecast to rise as affordability pressures mount, with overall contributions by families predicted to reach £11.3 billion by 2026.

The findings lay bare the financial strains caused by the housing crisis. A shortage of homes is driving up property prices, while surging rents and the higher cost of living are making it increasingly difficult for prospective buyers to save for deposits. Average private rents in Britain were up by 8.6 per cent in the 12 months to the end of July, according to the Office for National Statistics, not far short of the record pace of 9.2 per cent recorded in March.

At the same time, the cost of mortgages has jumped since the Bank of England began to rapidly lift its base interest rate from an all-time low of 0.1 per cent at the end of 2021 to a 16-year high of 5.25 per cent. While the base rate was trimmed to 5 per cent by the Bank this month, home loans are still more expensive than they were three years ago. This has increased the desirability among prospective buyers of having a bigger deposit, because this tends to bring down the mortgage rates offered by lenders.

As a result, people were making “tough decisions”, Bernie Hickman, the head of L&G’s retail business, warned.

The research, which involved a survey of 2,506 borrowers and 2,017 parents and grandparents, found that cash savings and Isas were the most common way for families to find the money to help relatives to buy properties, but 12 per cent also said they had dipped into their pensions. The same proportion used cash generated from downsizing, while 4 per cent remortgaged.

Buyers are also sacrificing pension contributions to save for deposits, with 15 per cent of prospective and recent property owners cutting or stopping saving for retirement or had not started a pension. For first-time buyers, this rises to 19 per cent, the study found.

“This research shows that families across the generations are facing tough decisions as they try to balance the aspirations of today, with the needs of tomorrow,” Hickman said. “We need to look at what could help all generations to achieve better financial security, enabling them to build savings and assets today and sustain their financial adequacy through their later years, too.”