Bank of Mum and Dad feeling the squeeze
People are dipping into their retirement funds to help family members on to the housing ladder.
It’s not a battle
A lot is said about the unfairness of high property prices on the young. There’s a tendency for some to frame the issue as a battle between the generations, with baby boomers benefiting from the equity they’ve built up, while keeping millennials off the ladder.
In fact, if it weren’t for the generosity of the over-55s, far fewer young people would have experienced the satisfaction of owning their own home. Legal & General’s research has shown that parents and grandparents will help 316,000 of the next generation buy a property this year. That’s one in four of all UK housing transactions. The Bank of Mum and Dad is certainly a topic that has gained much popularity, as it featured as the most popular criteria searched by brokers in August within the residential sector.
Is it fair?
But it is true that the reliance on the Bank of Mum and Dad, usually to raise the deposit, creates real unfairness. A divide, as reported by the BBC, is being created between those who can and those who cannot get on the housing ladder. Most obviously, there remain a lot of young – and not so young – people who don’t have family to help them. That’s one reason why some have argued that parental support is not the answer to the housing issues facing the UK.
It’s not baby boomers who have made house prices unaffordable for “generation rent”; it’s an acute housing shortage, with a shortfall of over 100,000 homes a year. Unsurprisingly then, it is thought that the key to unlocking homeownership for the next generation is to build more.
Is it sustainable?
Despite it being the UK’s ninth biggest “lender”, funding more than a quarter of house purchases, the Bank of Mum and Dad isn’t going to fix the housing crisis, as it isn’t sustainable. Many older people have worked hard, saved hard and benefited from rising property prices, but their wealth is still limited. There are no Government bailouts for the Bank of Mum and Dad.
Are people feeling the pinch?
Already, a report by Legal and General shows parents are feeling the pinch. In their report, they’ve shown that almost one in five parents and grandparents aged over 55 are accepting a lower standard of living to help their loved ones buy a home. Among those approaching retirement, more than a quarter (27%) say they’re worse off as a result.
For many, it means dipping into savings and giving up some of the luxuries they were looking forward to in retirement, such as a new car or a special holiday. For others, it means raiding their pensions: The data from this report has revealed that 73,000 say they’ve either cashed in pension pots or used funding from annuities to help family. One in ten say they feel less financially secure as a result.
One source of funds that perhaps should be considered more, is to access wealth tied up in property equity. L&G’s report found nearly 44,000 transactions are now supported through equity release. However, nationally just 4% of homeowners aged over 55 have used equity release, so there’s still clearly potential for growth.
But this report shows that the cost of housing, combined with years of stagnant or modest wage growth, is not just putting the squeeze on young people. It means an increasing number of older people who have worked hard all their lives, face a less comfortable, and in some cases less certain, retirement. And that’s not fair, either.
We need a more sustainable solution to the housing crisis – and that’s something all generations should be able to agree on.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOANS SECURED ON IT