The dream of homeownership remains elusive for many young individuals, with soaring house prices pushing them into prolonged spells of renting or cohabiting with parents into their 30s.
A recent study conducted by Legal & General and the Centre for Economics and Business Research sheds light on this shift in the UK property landscape – known as the ‘Bank of Family’. Two fifths of all parents and grandparents (42%) aged 55 and over have stumped up the cash to help younger family members purchase a home. To meet these significant costs, many have used a combination of their savings (68%), investments (22%) and even their pension (14%), but some parents and grandparents have also made use of their own property wealth to help family members.
There is more than £3.5 trillion in housing wealth held by the nation’s over 55s and an increasing number of parents and grandparents are turning to this to unlock support. Nearly one in five (18%) have used their own home to generate the money their loved ones need to make a purchase; this could be via equity release, downsizing or re-mortgaging. Among Legal & General Home Finance’s own customers, for instance, in the last year 11% took out a lifetime mortgage to make a financial gift to a family member.
Parents and grandparents who gift will provide significant sums of money, with prospective homeowners who benefit receiving £25,600 in support on average. And it’s not just direct financial support that’s being provided. A third of parents and grandparents have allowed adult children to move back home while saving for a deposit, avoiding an estimated £24,900 in outgoings.
Craig Brown, CEO of Legal & General Home Finance weighs in. “For families across the country, property is often one of the most significant financial assets
they have. We know that many parents and grandparents feel there is no better use of that asset than to provide for the future of their loved ones, helping many younger people overcome the huge challenge of getting on the first rung of the property ladder.
“However, it’s really important people take a considered approach when providing support like this. Our research shows many parents and grandparents do not seek any guidance or advice before parting with significant amounts of money, unless of course it’s a requirement of the product, as with lifetime mortgages. This is a big decision and people should carefully consider how and what they gift to ensure they don’t risk their own financial difficulties later in life.
“While not for everyone, later-life lending products, such as lifetime mortgages, might be suitable for some people over 55 to help family members step onto the ladder, but these should only be considered following a conversation with an adviser about all the options available to provide family with support.”
To navigate this intersection of family dynamics and finance, Legal & General has introduced the ‘Guide to Gifting.‘ This comprehensive resource is designed to empower parents and grandparents providing financial support, ensuring well-informed decisions that align with their broader financial strategies.
