Bank of Mum and Dad sacrifice living standards to help kids buy a home

Danielle Levy
28 August 2018
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Nearly one in five parents and grandparents accept a lower standard of living to allow their loved ones to get onto the property ladder.

A survey carried out by insurer Legal & General and the Centre for Economics and Business Research (CEBR) has found that 17% of so-called ‘Bank of Mum and Dad’ lenders are already worse off, or would be, after providing financial help to the younger generations.

One in 10 (10%) said they felt less financially secure, while 4% postponed retirement after supporting their family to get onto the housing ladder. 

The research showed that more than a quarter (26%) of women felt they had sacrificed their living standards versus 13% of men.

Based on the average contribution, Legal & General and the CEBR estimate that a household aged 55 and over would be £18,000 worse off after providing their children and grandchildren with financial assistance.

A little over a quarter (27%) of those approaching retirement, aged between 55 and 64, said they had accepted a lower standard of living after helping their kids out.

Chris Knight, chief executive of Legal & General Retail Retirement, says: “The Bank of Mum and Dad continues to play a major role in the housing market, but the support many people provide is leaving them feeling the pinch as they approach retirement.

“This generation is helping family or friends onto the housing ladder, but they don’t necessarily have the wealth to do so without impacting their own retirement plans, and they should get advice to make sure this won’t leave them short of funds.”

How the Bank of Mum and Dad find the money

Looking ahead, thousands plan to help their loved ones by dipping into their pension savings or income in 2018.

L&G and the CEBR project more than 50,000 house purchases will be partly or wholly funded by parents cashing in their pension pots to provide a lump sum for a deposit this year. In addition, close to 23,000 house purchases will be supported by individuals using their annuity income. 

The figures also reveal that a growing number of parents intend to use equity release to help their relatives to buy a property. Nearly 44,000 house purchases, roughly 14% of all Bank of Mum and Dad transactions, will be partly or wholly supported by equity release.

Meanwhile, a fifth (20%) of Bank of Mum and Dad transactions will be partly or wholly supported by parents downsizing.

On a more positive note, Mr Knight says a growing number of individuals are looking at alternatives.

“Property wealth has the potential to be a transformative force for so many people in retirement and, as this research shows, more people are now using lifetime mortgages to provide a ‘living inheritance’ that is transforming the lives of their loved ones,” he adds.

Comments

In reply to by anonymous_stub (not verified)

i am happy to lend my children money (interest free), but i would not give them money, they have to learn to stand on their own two feet as we all did.

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