Six in 10 parents in the UK can afford to make a financial contribution to help their children buy their first home however only 5% can pay for the full deposit, new research has found.
Some 61% parents are also helping their children financially through other means including rent free accommodation and free childcare, according to the report from Post Office Money.
It also shows that parental financial assistance can halve the time it takes for first time buyers to save for deposit as most can only save 7% of their income towards a deposit.
Overall 43% of parents say they provide a rent free place to live in their home for their offspring, 25% charge them a reduced rent and 15% look after their grandchildren for no charge.
The analysis, using data from Opinium Research and the Office for National Statistics (ONS), reveals that parents have an average financial wealth of £52,746 or £70,704 in London. If they choose to assist their child’s home purchase, on average they can afford to use 35% of this wealth, equivalent to £18,396 or a third of the average deposit for a first time buyer in the UK.
The survey found that 81% of parents are more than happy to provide financial support if they can. However, many parents do not feel they can provide their children with financial help. Just 5% say they can afford to make a financial contribution to the value of £50,000 or more, which is equivalent to the average UK deposit for first time buyers
Some 7% said that they felt guilty that they were not able to provide financial support for their children. Of those that have provided financial assistance to their children 59% gifted the support and 40% loaned the money.
The research calculates that given that 95% of parents are unable to provide a full deposit and that young people can only afford to save 7% of their income towards a deposit, the average deposit could take 18 years to save for. Although this drops significantly outside of London and the South East.
As a result some 43% of young people who don’t think they’ll be able to afford home feel it is because they won’t be able to afford a deposit in the near future. Of those that do aspire to own their own home 58% are planning to use their personal savings, with 22% hoping for some form of financial assistance from their family.
Parental support can significantly reduce the average amount of time millennials can expect to save for a deposit, the report points out, adding that outside of London and the South, parental assistance can help reduce the time it takes to save for a deposit by more than half.
In London and the South, it’s apparent that home ownership is only possible either much later in life when incomes are higher, or with above average parental help, it concludes.
‘For reasons beyond their control, the vast majority of the younger generation will need help and we can see that parents are doing all they can to support their children as 59% of parents we spoke to are able to make a financial contribution and many supported their children’s saving in other ways,’ said Owen Woodley, managing director of Post Office Money.
‘However, only 5% of parents were able to provide the full amount required for a deposit and so first time buyers are still having to work hard to make their dream a reality,’ he explained.
The research also found that 43% of young home owners who got support to buy said this was because their parents knew they wouldn’t have been able to purchase a home without it and naturally there were emotional implications on their relationship as a result.
Some 66% felt grateful to their parents as they felt more financially secure as a result, 20% reported it had a positive impact on their family relationship and 32% felt indebted to their parents.
‘Whilst it is excellent to see the positive impact parental support is having on family relationships, it is important that families are having frank financial conversations. With 24% having not agreed any repayment terms and only 15% having an informal agreement in place, relationships could become strained in future if families are not in agreement with their financial arrangements,’ Woodley added.
