Affordability crisis sees rise in financial support from families

As housing affordability continues to worsen, new analysis of the crisis by Legal and General has revealed that financial gifting from relatives is on the rise as a whole, but with regional disparity in the amounts given.

Related topics:  Finance,  Housing,  Affordability,  Family
Property | Reporter
21st September 2023
family home silouhette
"The Bank of Family has not only become a major lender – the ninth largest in the UK if it were a formal entity – but also a significant source of financial advice"
- Kevin Roberts - Legal & General Mortgage Services

A new analysis of housing affordability from Legal & General and the Centre for Economics and Business Research (Cebr) has found that 'The Bank of Family' recipients may receive varying amounts of support depending on where they live.

Surprisingly, levels of gifting don’t closely align with house price differences - according to the data, borrowers in the East of England are receiving the most support (av. £32,100), while those in the West Midlands receive the least (av. £19,800).

Huge gulf between the UK’s urban and rural markets

The data also indicates that the volume and individual size of Bank of Family gifting varies depending on whether the borrower lives in an urban or rural area. In 2023, the Bank of Family is expected to support the financing of 216,500 urban home purchases.

Meanwhile, the number of rural homes bought with support from the Bank of Family will be less than half that total, at 100,500.

Homebuyers in towns and cities are not only more likely to lean on the Bank of Family to buy a home, but they often need to borrow more than those in rural areas.

The Bank of Family is estimated to gift £5.7 billion towards urban home purchases in 2023, accounting for 70% of the value of Bank of Family support and more than two-thirds (67%) of the transactions it facilitates.

That equates to roughly £82bn worth of housing in 2023. The average gift or loan size for an urban home is also higher at £26,200, compared to £23,900 for a rural property.

Bank of Family propping up purchases up and down the country but with huge regional variations

Although house prices appear to be softening, homebuyers are still facing worsening affordability across the UK property market. The Bank of England base rate increased from 0.1% in December 2021 to 5.25% in August 2023, significantly increasing mortgage costs, with the average repayment for a semi-detached house rising by 61% across all UK regions from 2022 to 2023.

These wider affordability currents are reflected in Legal & General’s report, which investigates the number of property transactions in each UK region that received funding by a loan or gift from the Bank of Family.

Buyers in London are by far and away the most likely to receive financial aid from family members, perhaps unsurprising with the average house price standing at almost double the UK average (£534,000 compared to £286,005 in April 2023).

In fact, the survey suggests the Bank of Family supported two-thirds (67%) of recent homebuyers in the capital, more than double the proportion of the second-placed region (the North West at 36%).

Legal & General also recorded the average size of Bank of Family financial gifts across all UK regions.

London, the South East, the East of England and the South West see the greatest contributions from the Bank of Family. However, there is not always a direct correlation between regional house prices and the average size of a Bank of Family gift.

The East of England leads the way across all UK regions for the highest average Bank of Family gift or loan at £32,100 despite its lower house prices, trumping even London gifting at £30,000.

Kevin Roberts, Managing Director, Legal & General Mortgage Services commented: “Up and down the country, the Bank of Family is making significant financial sacrifices to help family members onto the housing ladder.

"Support is concentrated in urban and southern areas, where house prices are the highest, but is prevalent across the UK. While a brilliant lifeline for those able to draw on it, many people will not have access to such generosity and this widespread support is indicative of deep, underlying affordability issues affecting the UK.”

Significant gender split in borrowers seeking professional financial advice

Despite the Bank of Family is set to support a record number of home purchases in 2023, Legal & General’s survey also found that many recipients are not seeking professional advice. Aspiring buyers who draw upon family support largely do not speak to an adviser before accepting family help, with just 39% of borrowers seeking guidance from a mortgage broker or professional adviser during their Bank of Family transaction. 28% did not seek any advice at all.

Gender also plays a crucial role in borrowers’ decisions to seek professional advice. At 46%, women are far more likely to speak to a professional adviser than men (30%). In comparison, men (42%) were much more likely to depend on advice from friends than women (29%). Overall, 35% of all respondents asked friends and acquaintances who had similar experiences for advice.

Kevin Roberts concludes: “The Bank of Family has not only become a major lender – the ninth largest in the UK if it were a formal entity – but also a significant source of financial advice, with less than 40% of financial aid recipients seeking professional guidance before their transactions.

"The gender dynamics at play are also fascinating. At 46%, women are far more likely to speak to a professional adviser than men at 30%. In comparison, men are much more likely to depend on advice from friends than women, at 42% compared to just over a quarter (29%).

"In such a challenging economic climate, buyers must not overlook the insights that an adviser can bring to even the most complex of property transactions. Failing to do so could prove a very expensive mistake later down the line.”

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