Are mum and dad risking their retirement to help family on the housing ladder?
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The Bank of Mum and Dad will likely remain a feature of the housing market “for years to come”, a new report by Legal & General says, finding that parental support for house buying makes Mum and Dad the 11th biggest mortgage lender in the UK.
The report, published on Tuesday, says parents have helped their children get on the property ladder lending £5.7bn last year, a figure expected to be topped this year at around £6.3bn, with an average sum of £24,100 changing hands.
L&G warns that with longer and healthier lives comes a need for cash which parents willing to help their offspring might not fully appreciate. Around 15% of over-55s have accepted a lower living standard after helping family to buy a home, having accessed ISAs (21%), pension drawdown (7%) and annuities (6%) to help family on the housing ladder. Around a quarter say they are now not confident they have enough money to last their retirement.
The report notes the rise of equity release; among ‘BoMaD’ lenders and potential lenders, nearly a fifth (16%) named lifetime mortgages as a funding source they would consider. More widely, 29% among those who have not used equity release say they would be open to considering it, the report says.
Nearly a fifth (18%) of homeowners who have or would use equity release said the reason would be to give a lump sum to their children to help them buy a home of their own.
The report highlights that relying on gifts or loans from parents and grandparents is not sustainable and exacerbates inequality. It blames governments’ mismanagement of housing stock in the UK, which has put buying a home out of reach for many. For those lucky enough to get financial help from the bank of mum and dad, it creates dependency.
“To date, Government housing policy has failed to reflect both the scale of the challenge and the nuanced nature of housing demand,” the report concludes. “If we’re to treat the causes of the housing crisis rather than just the symptoms, we must deliver more homes across a range of tenures and types, increasing supply to deliver the properties needed by the UK’s population – young, old and in between.”
Until that happens – which might not be for a while – parents will likely continue to fund children’s house purchases says L&G but advises them to consider their own interests as well.
The report also serves as a reminder that there is competition between property and pensions, and while this would normally affect the younger generation saving for a deposit, it seems to have worked its way into the retirements of baby boomers as well.
This creates a need for financial advice, some would argue, to help older people understand how much they can give away without creating problems for themselves.
It will be interesting to see what other effects lending from the bank of mum and dad has on both generations. How would any policy to fund social care with housing affect the younger generation for example? Your views are welcome!