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Tuesday, May 03, 2016

The challenge of getting onto the housing ladder

The extent by which the housing market is frustrating the ambitions of many young people is revealed today in an article in the Times.  They report that parents helping their children on to the property ladder have become such an intrinsic part of the housing market that they will be involved in a quarter of all property transactions this year.

The paper says that a report by Legal & General and the Centre for Economics and Business Research has revealed that the “bank of mum and dad” is now the equivalent of a top-ten mortgage lender in the UK:

Rising house prices, years without real-terms wage rises, a shortage of supply and tougher mortgage regulations since the financial crisis have made it difficult for first-time buyers to get on to the property ladder.

The research shows that parents will lend more than £5 billion this year, providing deposits for more than 300,000 mortgages and helping to purchase homes worth £77 billion. On average, parents or family contribute £17,500 to a child’s house — about 7 per cent of the average purchase price.

The problem as Nigel Wilson, the chief executive of Legal & General, says is that such a model risks increasing inequality, because “many young people are not lucky enough to be able to access parental support”.

And because house prices are rising then those parents will face having to give ever increasing proportions of their savings.

The report says that about 256,400 houses will be bought with the help of parents, while a further 22,500 will be supported by grandparents and 27,000 by other family or friends. Nearly 60 per cent of contributions are given as gifts, 18 per cent as loans with no interest and 5 per cent as loans with interest.

The housing market is intrinsically linked to the success or otherwise of the UK's economy. But it is also a measure of how equal our society is. With so many people excluded from owning their own home because of the cost, then clearly something is very wrong.

Government intervention is always very tricky as it can distort the market and make things worse, but schemes such as help to rent, and help to buy can make a difference and need to be adopted and/or extended by the Welsh Government after 5th May.
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