Cost of living crisis hits Bank of Mum and Dad

Cost of living crisis hits Bank of Mum and Dad as growing number of aspiring first-time buyers reliant on personal savings – by Brian Byrnes

• 76% of aspiring first-time buyers planning to buy with their own savings (+57% YOY)
• 40% plan to buy their first home with some financial support from their family 
• Half of FTBs feel closer to realising their homeownership goal now than six months ago  

 
Research from Moneybox Home-buying, the leading provider of Lifetime ISAs in the UK, indicates that the Bank of Mum and Dad may not be as prevalent as it once was, with the percentage of first-time buyers (FTBs) planning to buy with their own savings skyrocketing in the last year, +57%.

In a survey of 1,000 would-be homeowners, the majority (76%) said they plan to buy their first home with their own savings. Just 20% expect to receive financial support from their family to help them raise a deposit. 20% of respondents hope to benefit from inheritance.

Without a doubt, saving a suitable deposit remains one of the biggest challenges many FTBs face. Last year, Moneybox Mortgages customers paid £66k on average (mean) on their first home deposit (median deposit; £35k) indicating that even those who may be fortunate enough to benefit from some familial financial support are still having to save significant amounts to make their dream of buying their own home a reality.

However, in the last six months, aspiring homeowners have had to reduce how much they save towards their deposit each month by 18%. In May 2023, FTB hopefuls were saving on average £344 per month. This figure has since decreased to £287 a month, and one-third of respondents have had to save for longer than planned to raise a larger deposit.

Despite persistent cost of living pressures, it is encouraging to see that many have continued to make steady progress towards their home ownership goals. Half of those surveyed feel they are closer to buying a property now than six months ago and 17% were even able to increase the amount they save towards their deposit in the last six months.

Brian Byrnes, Head of Personal Finance at Moneybox, comments: “While owning a home is still a top financial goal for most people, it appears that Bank of Mum and Dad could be starting to struggle to support their children’s property ambitions to the same extent as in previous years. As the cost of living puts pressure on household finances the obstacles facing prospective homeowners have only increased in the last year. Affordability and saving a suitable deposit are among the biggest concerns and it is clear that more support is needed to help the next generation of home buyers navigate the changing market conditions.”

Among those surveyed, the most popular savings products used to build a first home deposit were Easy Access Savings Accounts (43%), Cash ISAs (37%) and the Lifetime ISA (17%). With interest rates peaking in the last year, many FTBs will have benefitted from higher savings rates to fuel their first home deposit. However, the reliance on easy-access savings accounts is potentially cause for concern as many of these accounts do not keep pace with the competitive rates at the top of the market. Additionally, many first-time buyers are potentially missing out on free money by not making the most of the right saving vehicles to boost their deposits.

Last year, Moneybox analysis found that Brits eligible for a Lifetime ISA (LISA) – those aged between 18 and 39 years old – could be missing out on up to £18bn of ‘free money’ each year by not making the most of the 25% government bonus on offer.

For example, we know that first-time buyers are currently saving £287 on average a month towards their homeownership goal. If they were to save this amount into a LISA they would receive an extra £861 for free each year to boost their deposit savings as a result of the LISA government bonus.

Byrnes adds: “Saving in a Cash ISA will typically offer a better rate than an easy access account and will also ensure your savings are protected from the tax man. The Lifetime ISA also provides invaluable financial support to FTBs, and so for anyone wanting to do all they can to boost their deposit savings, it can really pay to consider the best mix of savings products to help you achieve your goal as quickly as possible.”
 

Top tips from Moneybox to help you save for your first home

1. Plan, plan, plan!

 
Before you can start saving, you need to understand your current finances, and what you need to buy your dream home. Taking the time to ask yourself the following questions will help you to feel confident as you start this journey.
 

• What you can afford? This includes not only what you can afford to save as a deposit but what you can afford in terms of monthly repayments, taking all your credit commitments into account. Remember to factor in things like student loan repayments and car finance when you’re working this out.
• What kind of deposit will you aim to save? You can put down as little as 5%, but the more you put down, the cheaper your mortgage repayments will be!
• Are you factoring in extra costs? It’s important to remember that in addition to your deposit, you’ll also need to put money aside for extra costs and fees such as solicitors fees and home improvements.
• Is your credit score in a good place? This is a good time to work on paying down any high interest debt.

2. Set a sustainable savings plan

 
Everyone has a different budget and preferred way of saving, and there are a variety of products to help you save the way that suits you best. For example, some may prefer to set up regular payments that drip feed into their deposit pot, while others may prefer to add a lump sum when they feel able. Spend some time working out what saving method works for you, the important thing is being able to maintain the level of savings over the long term. Rome wasn’t built in a day, but with a sustainable savings plan in place, you will soon start to see your deposit grow!
 

3. Make the most of ‘free money’

 
Make sure you’re making the most of all the help available to you. With a Lifetime ISA, you’ll get a 25% bonus on everything you save up to £4,000 a year. So for every £4,000 saved per tax year, you’ll get an additional £1,000 from the government on top. However, because the Lifetime ISA was designed to encourage long-term savings habits, the 25% government penalty also applies to any withdrawals made other than to purchase a first home, up to £450,000 (or for retirement) so it’s important to consider the best mix of products for your deposit savings to help you achieve your goal as quickly as possible.
 

4. Focus on the things you can control

 
No one can accurately predict the future of the housing market, so if you know you want to buy a home one day, focus on what you can control. The economy is cyclical, so it’s possible that the housing market might look very different by the time you’ve saved your deposit and are ready to buy. Consistency is key to achieving financial goals so setting calendar reminders every 3 months to check your progress will help you stay on track. Don’t get despondent if you haven’t made as much progress as you may have liked. Financial goals require time, discipline and the occasional reset.