Giving family money to get on the housing ladder can lead to financial uncertainty

Thousands of people aged 55 and over are generously gifting money as part of the Bank of Mum and Dad, using savings and even pensions to help their family onto the housing ladder, new research has found.

However, the study from financial services group Legal & General and Cebr also shows that many people could be accepting a more uncertain retirement after financially supporting family members to buy a home.

These latest findings follow earlier research from Legal & General which showed that this year the average Bank of Mum and Dad contribution has risen by more than £6,000, to £24,100. The rise means that the Bank of Mum and Dad is now the equivalent of a top 10 UK mortgage lender, gifting a total of £6.3 billion in 2019.

Parents and grandparents across the UK are overwhelmingly in favour of supporting their loved ones to buy a home. Some 56% of those who have or would consider helping family to purchase property said they are willing to because ‘it was a nice thing to do’.

Another 19% said they feel it’s their personal responsibility to help out and the new research shows that when it comes to gifting money, the Bank of Mum and Dad is drawing on a wide range of sources to financially support other family members with a deposit.

It shows that 53% are using cash, but 9% are cashing in lump sums from their pension savings, 7% are using their pension drawdown and 6% are drawing on their annuity income to help support their loved ones’ home ownership ambitions.

But despite this generosity, digging ever deeper into their retirement savings is leading some over 55s into a more uncertain retirement. Some 26% are not confident they have enough money to last retirement after helping their loved ones and 15% have had to accept a lower standard of living. A small number, some 6% are even choosing to postpone their retirement.

However, the research has also revealed that consumers are increasingly considering other solutions that can help them to support family members but also pay for the retirement they want to lead.

For example, unlocking housing wealth with equity release is becoming more popular with the over 55s and many are now using the money to help with a deposit. Some 16% have or would release equity and use that money to financially support their children or grandchildren. This makes it the third most popular source of funds.

But Bank of Mum and Dad lenders are using these funds to help with their own retirement ambitions too. Some 26% would or have used their housing wealth to fund home renovations and 58% of parents and grandparents are using it to free up cash to stay in their own home.

Across the over 55s surveyed who haven’t released property equity already, 29% said they would consider drawing equity from their home with a lifetime mortgage.

‘There are a vast range of considerations today’s retirees face when it comes to planning their finances, from whether they can afford to help their children buy a home, to setting aside funds for any future care needs they may have,’ said Chris Knight, chief executive, Legal & General Retail Retirement.
‘Parents and grandparents across the UK want to see their loved ones settled in homes of their own and are giving generously as part of the Bank of Mum and Dad. Many are using their pensions and savings to help out and unfortunately this could be leaving some facing a poorer retirement, especially if they don’t get the right advice,’ he explained.

‘With these pressures, it makes sense that the financial services industry should help provide solutions to suit a range of circumstances. Housing wealth has the potential to play a hugely transformative role for both Britain’s retirees and the next generation of home owners,’ he pointed out.

‘There is around £1 trillion of property equity owned by the over 55s. Not only could this wealth be transferred across the generations to provide a living inheritance for children, but it could also give many retirees the financial freedom they need to enjoy the colourful retirement they really want,’ he added.

While the Bank of Mum and Dad plays a positive role in helping thousands of people onto the housing ladder, Legal & General also wants to encourage more over 55s to seek professional advice before using their retirement savings to help loved ones.

Last year, just 12% of Bank of Mum and Dad lenders said they had sought professional advice from a mortgage broker, while 31% this year had or would seek advice. However, 44% still hadn’t taken or would not take any advice at all before gifting money.

‘Thousands are still dependant on the Bank of Mum and Dad to take their first or next step on Britain’s housing ladder. The generosity of parents and grandparents is inspiring, but many are making big financial decisions without adequate planning or professional advice. Retirement is much longer, and much more varied, than it used to be. Gone are the days of once and done retirement decisions,’ said Knight.

In response to the research, Helen Morrissey, pension specialist at Royal London, said that while it is natural that parents want to help their children get on the housing ladder it must not be at the expense of their own financial security in retirement.

‘Financial circumstances can change quickly and parents must take advice before lending money to their offspring on whether they can genuinely afford to manage without this money over the long term,’ she added.