The Bank of Mum and Dad prevails – second time around!

Monday June 26, 2017

Almost a third of home buyers moving to their second home expect to go cap in hand to those around them to borrow more than £21,000, despite half of those having ALREADY received financial support to help them to buy their first property.

Despite recent easing of lending conditions, research from Lloyds Bank suggests rising property prices mean thousands of so-called “second steppers” say they wouldn’t be able to make their next move up the home-owning ladder without financial support from their family.

As well as using equity from their current property and plundering their savings, one in five second time buyers will ask their parents for help, almost one in ten will ask grandparents  and more than one in 20 would even ask their friends!

Without help, more than a third of second steppers say they wouldn’t be able to make their next move.  Half of those who required additional financial help from their parents believe those parents have had to make sacrifices themselves to help their offspring out.

Additionally second time buyers are also having to make sacrifices of their own to enable them to move up the property ladder including having fewer children than planned, having said children later in life and even changing careers.

Despite that, a quarter of second steppers report the second jump is harder than getting on the bottom rung, due to a lack of affordable, family-sized properties on the market, the cost of stamp duty and potential changes to interest rates.

They are right to be concerned.

The base interest rate – set by the Bank of England, and used by mortgage providers as a key component in calculating the cost of home loans –  has been at a “once in a generation” low for eight years.

In that time the average UK property price has risen by more than 40 per cent, the equivalent of £60,000. In hotspots like Cambridge, prices have doubled in that time and in the capital, the average property has broken through the £500,000 barrier, figures suggest.

Galloping prices have pushed buyers to the very edges of their finances and beyond, but with the benefit of historically low monthly costs as base rates dropped to 0.5 per cent in 2009 and then to 0.25 per cent last summer.

That may all be about to change however, as the records from the latest Monetary Policy Committee meeting, the group that decides the base rate each month shows growing numbers of members are now in favour of increasing the rate as a result of the most up-to-date economic data.

It could mean an interest rate rise for the first time in around 100 months, something many would-be second steppers have never known, such is the length of time the base rate has been so low.

At the same time, property prices appear to be moving away from the fundamental drivers that push them up with alarming speed.

All this points to what we already knew, that property prices are out of reach for most would-be buyers and movers. For those who have stretched themselves more than is comfortable, with large loans from both formal and informal sources, that chicken is in all likelihood about to come home to roost.

And with the latest data suggesting prices are now beginning to fall, fears over negative equity – another phenomenon that many first- and second-time buyers will have no experience of – are also beginning to increase.

In that case, second steppers may find scraping together the deposit for their next big move with help from their parents is the least of their problems.

Our own Ellen Roome is holding a seminar covering this very topic, in conjunction with Cirencester estate agents Cavendish Green, at their offices on July 12th. A must attend if you think this could affect you. Watch this space for further details and do join us on the night – email sharon@thefinanceroom.co.uk for further information.