A large number of over-55s are facing a lower standard of living after helping their children or grandchildren onto the property ladder.
The latest research into the Bank of Mum and Dad found that 17% of parents and grandparents were worse off by providing financial assistance to loved ones.
What’s more one in ten said the felt ‘less financially secure’ and 4% postponed their retirement after using their money to help their kids or a family member purchase their first property.
According to the study, which was carried out by Legal & General and the Centre for Economics and Business Research (Cebr), the problem was worse amongst those parents or grandparents between 55 and 64. In this age group the number who accepted a lower standard of living after lending money to their family increased to 27%.
Yet, despite the risk of sacrificing financial security or forgoing their standard of living, it would seem Bank of Mum and Dad lenders are not to be deterred in their bid to support the next generation’s dreams of homeownership.
How the loans are funded
Legal & General revealed 50,000 transactions – which accounted for around 14% of Bank of Mum and Dad dealings – would be funded by cashing in pensions pots to provide a lump sum for a deposit. Meanwhile, 23,000 transactions would be supported by people using their annuity income.
There is also evidence of the increasing use of equity release amongst over-55s to help boost their family members’ homeownership aspirations.
Nearly double the number – 44,000 – housing transactions would be funded using this method than annuities or taking out a loan, the research discovered.
Feeling the pinch
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.”
Knight added that recent increases in the base interest rate following years of record lows provided and added challenge of the rising cost of borrowing.
But, he added: “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.”
