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This section examines the current potential for parents to provide financial

assistance to their children to help with purchasing a home and then projects forward using three different scenarios based on three difference assumptions about

economic circumstance in the UK going forward twenty-five years.

Key findings in this section

 In the UK, more than 30% of households with dependent children currently hold assets that could, in due course, be used towards a deposit for the

purchase of a home. Although there are definitional differences, the number is broadly comparable with the latest figure (34%) for FTBs receiving parental financial assistance in England.

 The percentage increases with income, but even 28.8% of households in the lower quartile income band have suitable assets.

 Surprisingly, 35.9% of lone parents also hold suitable assets but this number excludes those in multiple-family households who may reasonably be

expected to have lower incomes.

 However, in respect of social mobility it should be noted that only ten percent of households without any formal educational qualifications over two

successive generations have plans of any sort to assist their children with homeownership.

 Numbers of future FTBs are projected to rise slightly in the short term then fall gradually over the next twenty-five years. The speed and extent of the rise and fall will be determined by the robustness of the economy.

 If economic activity remains at the baseline scenario level for the next twenty-five years the proportion of assisted FTBs will reach 40.6% by 2023/24 after which it is projected to gradually decline, although it will remain above 30%.

 If economic activity increases, the proportion of assisted FTBs is projected to rise slightly faster, reaching a peak of 39.0% by 2021/22. Thereafter it will decline, as fewer FTBs will require assistance. By 2039/40 it will have fallen to 2005/06 levels.

 If economic activity weakens, the proportion of assisted FTBs is projected to remain at current levels, around 34%, until 2024/25 and to then increase gradually to just under 40% where it will remain for the period running up to 2039/40. However, under this scenario, the absolute number of FTBs,

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particularly unassisted FTBs, is projected to fall furthest.

7.1. Planned availability of assets to assist children with purchase of home Calculations based on data from the Wealth and Assets Survey (WAS) ¹¹ show that 31.3% of households with one or more dependent children have assets available that could be used to assist with a deposit on a home, whether to buy or rent.¹² However, this percentage cannot be straightforwardly interpreted as equating to the future proportion of FTBs who will receive money from their parents due to potential overestimates and underestimates.¹³ Nonetheless, if these factors are assumed to offset each other to some extent this percentage is comparable to the 34.1 FTBs in England currently receiving parental assistance by way of money or a loan. It therefore seems reasonable to use the WAS figures to assess the availability of parental assets that could be used to assist with children’s home purchase going forward.

Table 7.1.1 sets out the availability of identifiable assets to help with a deposit for home purchase or rent by the household reference person’s (HRP) age band.

 Over 30% of households in all three age bands are calculated as having sufficient assets.

11 WAS is a biennial longitudinal survey with approximately 20,000 household interviews across Great Britain. The latest survey was undertaken between 2012 and 2014. WAS is funded by a consortium of government departments: Department for Work and Pensions; HM Revenues and Customs; HM Treasury; Financial Conduct Authority; Scottish Government and the Office for National Statistics.

12 Authors’ calculation drawing on the relevant count and weight given in WAS datasets.

13 This figure could be an overestimate because:

 The questionnaire refers to assets available for a deposit either to buy or to rent

 With multiple children, the assets may not be available for or used for all of them.

This figure could be an underestimate because:

 Assets allocated to a different purpose could be used for children’s home purchase.

 Even households with no identifiable useable assets could borrow to help

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Table 7.1.1. shows planned availability of assets to assist children with purchase of home, by household reference person’s age band

age band % households with available assets

Source: Authors’ analysis drawing on WAS Wave 4.

Table 7.1.2 shows the number of households by quartile with some sort of assets available to assist their children with homeownership. Note that household income is measured as gross household income excluding all benefits.¹⁴

 More than 30% of households whose income is at or above the lower quartile are preparing to help their children. One third of households in the top quartile are doing so and almost 30% of those in the lower quartile have identifiable assets with which to assist their children with home purchase or deposit for rent. These figures suggest the current level of FTBs receiving assistance by way of money or a loan is sustainable into the next generation.

Table 7.1.2 Households % with planned availability of assets to assist children with purchase of home, by household income quartile excluding all benefits

income band %

<Lower quartile 28.8

Lower quartile - median 31.0

Median - upper quartile 31.2

>Upper quartile 33.4

Source: As Table 7.1.1.

14 Average figures were calculated from WAS Wave 4 as used in Table 7.1.1. The average annual gross income after benefits of those having assets available is calculated as £50,425. The equivalent figure for those not having available assets is calculated as £45,470.

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Table 7.1.3 shows the breakdown by household composition of those with identifiable assets available to help with home purchase.

 34.5% of couples with dependent children are calculated to have identifiable assets.

 However, the group by household type with the largest percentage of households able to identify suitable assets are lone parents, at 35.9%. This higher than expected figure may be because significant numbers of lone parents are ‘concealed,’ identifying as lone parents but within multiple family or multigenerational households.

Table 7.1.3. Breakdown by household composition of those with planned availability of assets to assist children with purchase of home

%

Couple and dependent children 34.5

Lone parent and dependent children 35.9

More than one family, other household types 7.3

Source: As Table 7.1.1.

Table 7.1.4 sets out the breakdown by highest socio-economic status of a reference person or his/her partner of those with identifiable assets available to help with home purchase. The status categories are from the National Statistics Socio-economic Classification (NSSeC).

 Unsurprisingly, the higher the status, the higher the proportion able to identify assets to help their children with a deposit for rent or home purchase. Thus, managerial and professional occupations had the highest level, at 36.1%, followed by intermediate occupations at 30.6%, with routine and manual occupations and those who have never worked, respectively just above or below 25%.

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Table 7.1.4 Planned availability of assets to assist children with purchase of home by highest NSSeC of HRP or partner.

%

Managerial & prof. occupations 36.1

Intermediate occupations 30.6

Routine & manual occupations 26.7

Never worked/long term unemployed/not classified/N.A. 23.5 Source: As Table 7.1.1.

Table 7.1.5. shows the breakdown by educational qualification of the HRP or his/her partner of those with identifiable assets available to help their children with home purchase. Table 7.1.6. disaggregates these figures further by highest educational qualification of the HRP’s father or mother.¹⁵

 The difference in Table 7.1.5. between those with degree level or higher qualifications and those with no qualifications is marked, at 34.6% for the former and 17.6% for the latter.

 The proportion in Table 7.1.6. of households without qualification in two successive generations with identifiable assets to fund home purchase for their children is significantly low at 10.2%. This suggests lack of educational qualifications across successive generations would greatly decrease the likelihood of FTBs receiving parental help.

Table 7.1.5 Planned availability of assets to assist children with purchase of home, by educational qualification of HRP or partner

%

Has qualification, degree level or above 34.6

Has qualification, other level 32.4

No qualifications/not applicable 17.6

Source: As Table 7.1.1.

15 Note that the figures do not precisely correspond due to missing records.

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Table 7.1.6. Planned availability of assets to assist children with purchase of home, by HRP’s qualification and HRP parent’s qualification

% % %

HRP or partner: qualification level Degree or

above

Other level No qualifications

HRP’s parent:

Note: * No records in this category. † Highest education level of HRP’s farther and/or mother. HRP partner’s parent’s education level was not considered. Due to missing records, the total percentages of HRP or partner are not identical to those in Table 7.1.5. Source: As Table 7.1.1.

Table 7.1.7 shows planned availability of assets to assist children with purchase of home, disaggregated by household tenure of the parent. Table 7.1.8 is a further breakdown of Table 7.7 by tenure in the HRP’s childhood.¹⁶

 34.6% of mortgaged owner households have assets identified for the purpose as do 31.8 of outright owners. The proportions for private renting and social renting were lower at 25.8% and 26.9% respectively.

 Regardless of current tenure (with one exception)¹⁷ HRPs who had been in an owner occupier household as teenagers were relatively likely to have planned the availability of assets to assist their children with home purchase. This is likely to be a result of inheritance of all or part of their parent’s home.

16 Again, missing records mean totals of tables 7.1.7 and 7.1.8 do not match.

17 Private rented to owned outright - requires further research.

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Table 7.1.7. Having planned availability of assets to assist children with purchase of home, by parent’s tenure

%

Owning outright (OO) 31.8

Owning with mortgage (OM) 34.6

Private renting (PR) 25.8

Social renting (SR) 26.9

Note: Shared ownership is included with “owning with mortgage”. Source: as Table 7.1.1.

Table 7.1.8. Having planned availability of assets to assist children with purchase of home, by current and childhood tenure

Current tenure

Note: * Disaggregation by public/private sector is unavailable. Due to missing values on tenure when teenager, the total percentages do not agree with the equivalents in Table 7.1.7. Source: as

Table 7.1.1.

7.2. Percentage of FTBs to receive parental support going forward: Projection by times-series regression and scenario-based analysis

The second approach is to project the proportion of FTBs to receive money or a loan from parents drawing on time-series datasets and based on scenarios of the future path of housing market fundamentals and demographics. As part of this approach the number of FTBs is also projected. The core variables projected are (i) the proportion of FTBs in England receiving money or a loan from parents and (ii) the number of FTBs given mortgages in the UK. The definitions and data sources are the same as used in Section 6.)

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Projection Method

Both ‘assisted’ FTB proportions and total FTB counts projected using time-series regression using demographic factors, housing market factors and macro-economic factors. Data availability limitations means the former data are for England while the latter are for the UK. However, the overall trends of the two geographical levels are sufficiently similar. Details of the factors’ definitions and the regression results are set out in the Annex. The factors having significant impacts on the two FTB variables are:

 Factors which impact the assisted FTB proportion are not particularly

significant because reliance on parental help and willingness to help children could be both pro-cyclical and counter-cyclical.

o When the population of the parental cohort (45 to 69 years) was greater than that of the FTB cohort (20 to 39 years), the proportion of assisted FTBs will be higher.

o When the income of non-retired households is lower, FTBs are more in need of financial assistance from their parents.

o An increase in the housing supply may well raise the proportion of assisted FTBs but impacts from other housing market factors are unclear.

 The impacting factors on FTB counts are:

o An increase in population at or around FTB age raises the FTB count (in the previous analysis, the median FTB age was around 30 years old).

o An increase in the disposable income of non-retired households boosts purchasing power.

o An increase in the housing supply raises the FTB count.

o Lowering the cost of borrowing increases the number of FTBs.

Assumptions for scenario creation

The impacts of the above factors on the two FTB variables for the period to 2040/41 were applied to three scenarios. The baseline scenario follows recent trends,

drawing on projective indicators available from the Office for Budget Responsibility, the population projections of the Office for National Statistics and various other sources. In the weak scenario, a more pessimistic view was taken of employment related factors while in the robust scenario a more optimistic view was taken. The assumptions are summarised below:

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Table 7.2.1. Projection assumptions by scenario

Baseline Weak Robust decline to 220k in 2040/41.

Through the projection period, 80% of the supply is assumed to have taken place in England.

Average over the past over the past decade (0.0% p.a.

in real terms); two decades (1.9%); three decades

Average over the past over the past decade (3.0%

Average over the past five years (0.5%); decade

Rising to 1.0% in 2020/21 Staying at 0.5% till 2025/26

Notes: Data sources for the reference levels are: Department for Communities and Local Government (2007) “Homes for the future: more affordable, more sustainable” (for housing supply). ONS (for non-retired income and house prices). UK bank base rate (Bank of England).

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Projections

Figures 7.2.1 to 7.2.3 are the projection charts based on a baseline (most likely), robust and weak scenarios respectively.

 In the baseline scenario, the proportion of assisted FTBs is projected to hold the recent trend, reaching 40.6% in 2023/24. After the peak, it will gradually decline, but it will remain above the 30% level throughout the observation period.

 In the robust scenario, the proportion of assisted FTBs is projected to increase a little more quickly and reach a peak of 39.0% in 2021/22. It will thereafter decrease partly because of the robust level of unassisted FTBs. By the end of the projection period it will return to the level observed in the

housing boom period of around 2005/06 as a robust economy means more FTBs can buy unassisted.

 In the weak scenario, the proportion of assisted FTBs is projected to move around the latest level of 34% until 2024/25. Then it will gradually increase to almost 40% and stay around that level for the final decade of the projection period as a weak economy means a greater proportion of FTBs will need assistance to buy.

Figure 7.2.1 Projection: Total FTBs and percentage assisted - Baseline scenario

Notes: 4-year pooling average for the percentage and 4-year moving average for the FTB counts.

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Figure 7.2.2 Projection: Total FTBs and percentage assisted - Robust scenario

Notes: As 7.2.1.

Figure 7.2.3 Projection: Total FTBs and percentage assisted - Weak scenario

Notes: As 7.2.1.

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Section 8 discussion and implications

Over the past few decades, pressure on housing affordability has been increasing, leading to a significant decrease in the proportion of young people entering home ownership. This has led in turn to a critical role for parents to assist their children to buy their first home. Parental help can take several forms but the most popular one is simply the gift of money, or a soft loan. The latest proportion of first time buyers receiving this type of help has now reached 34.1%, an historic high.

Comparing trends of both assisted FTBs and unassisted FTBs, some aspects of the former group appeared as a lagged indicator for the latter group’s equivalent – that is, the characteristics of current assisted FTBs were observed previously amongst unassisted FTBs. This proves that the UK, or at least the English, housing market has a long-term downward trend of affordability and a consequent shift-upwards in parental assistance, as illustrated below:

Figure 8.1 Long-termed housing affordability trends for assisted and unassisted FTBs

For simplicity, the above chart sets out the parallel trends of affordability for the two groups, but the shift-upwards could either increase or decrease. If the latter is the case, the degree of lag from unassisted to assisted will be shortened.

The other notable aspect of parental help with home purchase is it typically is a one-shot deal. It enables FTBs to aspire to purchase their own home but the mortgage repayments are generally their own responsibility. If parental assets increased significantly over the projection period then an element of mortgage repayments might be included as a regular gift, enabling FTBs to obtain and service larger mortgages which could increase the above lag and/or feed into increased house prices, depending on levels of housing supply.

Assisted FTB

Upwards shift via parental help

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In any event, the current historically high level of parental help in the form of a gift of money or a loan is projected not to decline significantly below current levels over the next few decades. In the UK, more than 30% of households with dependent children currently have sufficient assets with which to provide assistance with the deposit for their children’s first home. The scenario approach presented above supports such projection. As the parental contribution is, in part, counter-cyclical, the proportion helping their children in this way could remain at or around current levels even if macroeconomic fundamentals become weak, On the other hand parents may choose to use their cash and the equity in their own homes to supplement their pensions in retirement. In any event, aspiring FTBs for whom family help is

unavailable will most likely remain disadvantaged, even more so if their parents fall into the least educationally qualified category. Going forward, the gap will almost certainly be maintained between those in the UK who can acquire that most significant of financial assets, the family home, and those who cannot.

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Annex: Time series regression for projections

Table A.1 Variables used in the time-series regression for assisted FTB proportion

variables unit source

Assisted FTB proportion

% of FTBs receiving money or loan from parent; four-year pooling average

Authors’ analysis drawing on EHS and SHE

Population

Ratio of population of 45-69 year olds to 20-39 year olds; four-year moving average

Authors’ analysis drawing on ONS mid-year population estimate

Household income

average disposable income index for non-retired household; four-year moving average

Authors’ analysis drawing on ONS

House completion

No. of completed permanent dwellings in England; four-year moving average

Authors’ analysis drawing on DCLG

Note: Observation period is 1993/84 to 2014/15.

Table A.2 Time-series regression result: assisted FTB proportion

Coeff. S.E.

Household income -9.74E-06 3.80E-06 **

House completion 1.31E-06 6.33E-07 *

Population 0.945 0.267 ***

Constant -0.588 0.242 **

Note: ARIMA-model. *, **, *** indicate 1%-, 5%- and 10%-significance level, respectively. Stationary R² = 0.524. Ljung-Box Statistics =21.369 (DF: 18, Sig: 0.261).

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Table A.3 Variables used in the time-series regression for FTB count

variables unit source

FTB count No. of FTB mortgages in natural log form CML Population

mid-year population estimate of 20 to 39 yrs. in the age cohort; £s

in natural log form ONS

Household income

average disposable income index for non-retired household; in

natural log form ONS

House

completion No. of completed permanent dwellings; in natural log form DCLG House price average house price index; £s in natural log form ONS

Interest rate UK official bank rate; % Bank of

England Note: Observation period is 1983/84 to 2014/15.

England Note: Observation period is 1983/84 to 2014/15.

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