A recent survey conducted by Legal and General (L&G) suggests that parents are spending so much money helping their children onto the housing ladder that they are now among the largest lenders in the UK.
The average parental contribution to home buyers this year is £24,100, an increase of more than £6,000 over the last year. Altogether parents have given £6.3bn, sufficient for the bank of mum and dad to rank 10th if it were a mortgage lender.
To put it into context, Clydesdale Bank, the UK’s 10th largest mortgage lender lent £5bn last year.
L&G has said that thousands of UK buyers are now dependent on their parents either to step onto the housing ladder or upgrade to a larger home. Almost 20% of those who had helped or would commit to help a family member buy a home said they felt personally responsible for helping out.
A poorer retirement
However, the financial services company warned that parents’ willingness to help could adversely affect their standard of living in retirement.
The research, based on a poll of 1,600 parents, found that more than half were using cash to help their children, while others were withdrawing lump sums from their pension pots or said they would be willing to use equity release from their homes.
Nonetheless, the results showed that more than 25% of respondents were doubtful that they would have sufficient income in retirement.
And 15% said that they had already experienced a decline in their standard of living as a consequence of helping their children.
Chris Knight, CEO of L&G’s Retail Retirement division, has said that retirees must consider a wide range of factors before deciding whether to help out, including putting aside funds for any future care needs. Knight added that many parents are using their pensions and savings to help out and this could result in some facing a poorer retirement.
A rise in adults living at home
While some young prospective home owners receive a financial contribution from their parents, it is estimated that one million more young people will live with their parents over the next decade, according to research conducted by the insurance company, Aviva. The company said that the main reason is the unaffordability of housing.
The study predicts that 3.8 million people aged 21-34 will live at home by 2025, 33% more than currently. The number of households containing two or more families is also expected to increase from 1.5 million to 2.2 million. However, the statistics assume that house prices will continue to rise at the same rate as they have done over the last ten years.
Nevertheless, there are compensations to multi-generational living, such as a more communal environment, more hands to share the chores and cheaper living costs, the company has said.
Lindsey Rix, managing director of Aviva UK added that two-family living is often seen as a last resort rather than a positive choice, especially when adults are forced to move back in with family in order to save for long-term goals such as buying their own house.
But Rix says the report demonstrates that far from being a hardship, two families living together can be a life-enhancing experience with the benefit of a greater number of people around for company and shared living costs reducing the overall financial burden.
1.1 million households in England and Wales were officially overcrowded, according to figures from the 2011 census. In London, 11.3% of homes were overcrowded, increasing to 25% in the borough of Newham, the most severely affected district in England.