Research by Legal & General and Cebr has found that nearly one in five parents and grandparents aged over 55 are accepting a lower standard of living to help their loved ones onto the housing ladder.
The ‘Bank of Mum and Dad’ (BoMaD) research found that 17% of BoMaD ‘lenders’ either would be, or already are, worse off as a result of providing financial assistance to loved ones.
10% also said they felt less financially secure and 4% actually postponed retirement after supporting family or friends onto the housing ladder. Based on the average contribution by BoMaD, an over-55 household would be £18,000 worse off after providing financial support.
The number of ‘lenders’ accepting a lower standard of living was higher amongst those approaching retirement, including 27% of those aged between 55 and 64. Despite this, thousands will still help their loved ones using pension savings or income in 2018, with over 50,000 transactions partly or wholly funded by those cashing in their pension pots to provide a lump sum for a deposit and nearly 23,000 supported by individuals using their annuity income.
L&G said the Bank of Mum and Dad is increasingly using equity release to help the homeownership ambitions of relatives. The insurer’s research found that nearly 44,000 housing transactions, roughly 14% of all BoMaD transactions, were partly or wholly supported by equity release, nearly double the number using annuities and over twice as many as those relying on taking out a loan. However, it remains a largely underutilised source of funding, with just 4% of over 55s saying they had used equity release.
The research also found that BoMaD lenders were unlikely to take advice in regard to the impact their giving may have on their own financial future. Before gifting money to help family or friends onto the housing ladder, 77% did not speak to a professional adviser or even seek information online.
Chris Knight, CEO of Legal & General Retail Retirement, said: “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.
“After years of record lows, increases in the base interest rate also provide the added challenge of a rising cost of borrowing. Nearly a fifth of those aged 55 and over face a lower standard of living after helping loved ones onto the housing ladder, with one in ten also feeling less safe about their financial future at a critical stage in their lives.
“The good news is that more people are looking at the 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.”