Why you shouldn’t take money from your parents to buy a house

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Good afternoon and welcome to this week’s Home Front. This won’t make me popular, but… let’s talk about why accepting financial help from your parents to buy a home is bad for the housing market, bad for the people you know who don’t come from wealth, and perhaps even bad for you in the long run, too.

It’s not that first-time buyers don’t need the help. Buying a home is nearly impossible for those who don’t have parents with spare cash to splash.

A new report written by expert housing market analyst Neal Hudson and published by the Building Societies Association (BSA) this week has found that first-time buyers today face the toughest buying conditions in 70 years.

The reasons for this are threefold.

Firstly, after the global financial crisis in 2008, house prices soared, making it harder for first-time buyers to buy. The cost of homes outpaced wages substantially.

Secondly, because mortgage lending was (rightly) tightened in the wake of that crisis, it became harder for first-time buyers to access the credit that has helped previous generations become homeowners for the first time.

And finally, in 2020, the pandemic hit while house prices were at an all-time high. Boris Johnson’s government cut stamp duty to boost the economy after the first lockdown. This fuelled a house price boom that sent prices soaring to new record highs.

Then inflation took hold, causing the Bank of England to increase interest rates. And that, coupled with Liz Truss’s brief tenure in Number 10 – which nearly tanked the economy and caused mortgage rates to spike – means that the average interest rate on a mortgage is higher than it was for much of the last decade. This means first-time buyers are hit with a double whammy of high house prices and expensive mortgages.

And that’s if they’ve managed to save a deposit, of course, which is no mean feat because private rents are also at historic highs, making it harder for people to save their incomes.

The BSA has found that those first-time buyers who do manage to secure a mortgage and a home of their own were increasingly reliant on having two high incomes or receiving financial support from family.

Hard luck, single people. If you’re single and low-income, forget about it.

Those without family money to propel them into homeownership would be forgiven for feeling disgruntled, but there are two very good reasons why borrowing money you don’t have from your parents or grandparents to buy a home you can’t afford on your own is a bad idea.

As I wrote recently, all of the available data from the Land Registry and major lenders like Halifax suggests that house prices across the UK are still falling. They’re falling gently, but they’re not rising.

Asking prices, however, are going up. According to the online property listings site Rightmove, the amount that sellers would like to charge for the homes they are selling went up by 1.1 per cent on average between March and April this year. The annual growth Rightmove reported is 1.7 per cent.

House prices and asking prices may yet realign.

But right now, anyone who borrows money from a family member to boost their deposit in order to meet these increasing asking prices could risk overpaying at a time when house prices are falling from their incredibly expensive peak post-pandemic.

On top of that, they could inflate local house prices in their area, pushing homeownership even further out of their reach for those who don’t have access to the Bank of Mum and Dad.

If you think about who was able to buy their first home during the 2010s, it’s clear that this is a risk.

In the wake of 2008, two kinds of buyers benefitted from ultra-low interest rates. They were cash investors and increasingly through that period, first-time buyers who had their family’s finances behind them.

As the number of total first-time buyers declined, the number who had family help rose.

By the start of this year, 37 per cent of all first-time buyers had cashed in a cheque from the Bank of Mum and Dad.

The extent to which young adults’ families now step in to help them access homeownership was initially a consequence of house price inflation. Now it is also likely a cause of it.

Well-meaning parents and grandparents have helped their offspring buy unaffordable housing and stoked a market that is reliant on this sort of intergenerational transfer of wealth in ways it was not in the 1980s and 1990s.

Britain is no longer the meritocracy New Labour said they had created: it is an inheritocracy that rivals the world depicted in a Jane Austen novel because progressing in one’s life is now so reliant on parental patronage.

Spare a thought for those who don’t have rich parents. In 1997, when New Labour took power, the most common living arrangement for young adults aged 18-34 was as a couple with one or more children. By 2017, there were more young adults living with their parents than in a home of their own. That remains true today.

The traditional milestones of adulthood have moved. Work no longer pays enough for a growing number of people to pay private rent (which has risen by 9.2 per cent in the last year alone), let alone buy a home of their own. Homeownership remains Britain’s most secure housing tenure, but it is inaccessible because, for lots of people, work no longer pays enough to be able to afford a home.

That fact – which illustrates how social progress in Britain has gone into reverse – should be much, much more of a national scandal than it currently is.

Key housing

Labour have announced one of their flagship housing policies. (Photo: Darren Staples/Getty Images)

There are two key housing stories that are worth spotlighting this week.

First up, last Friday the Labour Party announced one of their flagship housing policies.

The policy is technical. It centres on the re-classification of low-value parts of the green belt, or what Labour are calling “grey belt”. These will be prioritised for new housebuilding and 50 per cent of the homes built on them must be affordable.

The definition of ‘affordable’ will matter here – will those homes be genuinely affordable, or offered at a small discount on market rates which, as we’ve learned recently, is not affordable at all?

However, that appears to be the only wrinkle in what otherwise seems to be a sensible policy.

It also won’t require endless back and forth with backbench “NIMBYs” as the Tories’ Levelling Up Bill did. As it works within existing frameworks, in theory, it should be possible to be implemented quickly if Labour are elected.

The green belt has become an emotional lightning rod in planning debates, but the sober reality is that it contains many brownfield sites as well as bits of land that are far from beautiful. Protecting nature and preserving truly green areas is vital, but building on plots that are perfect for development makes sense.

Next, onto Michael Gove’s victory on ground rent. The Housing Secretary has secured a 20-year transition to a peppercorn rent with caps on ground rents at £250 in the meantime. This is likely the safest option for reforming the leasehold/freehold system for the government because it limits the scope for legal challenges from freeholders. It will save leaseholders thousands of pounds.

Mr Gove has come good on his promise and on the Tories’ manifesto commitment to leasehold reform – despite opposition from within his own party.

Ask me anything

This week, I received an email from a reader whose ceiling has collapsed. The pictures show the ceiling caved in, leaving a hole where it once was and debris across the floor.

“We’ve asked for a rent reduction and our landlord has refused. Is this allowed?”

The short answer is…no. No, it’s not. If your health has been endangered and your enjoyment of your home has been impacted by a ceiling collapsing, your landlord must fix the problem quickly, and if it goes on for some time, you can apply for a rent repayment order (RRO).

Find out more about RROs on the housing charity Shelter’s website.

Vicky’s pick

I am currently reading Evenings and Weekends, the debut novel by Oisin McKenna. I don’t want to give too much away, so all I will say is this: it’s a brilliant, rich, and moving love letter to cities, a meditation on friendship and family that reflects how the housing crisis has shaped young adults’ lives today.  

This is Home Front with Vicky Spratt, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.