More than half of parents plan to or already have helped a family member purchase a property, a new report has revealed.
The study, published by financial services group Legal & General (L&G), reveals that the ‘Bank of Mum and Dad’ is now the 10th biggest mortgage lender in the UK.
In total, generous parents will give some £6.3 billion to family members this year to help them get their foot on the first rung of the housing ladder.
However, L&G warned that the generosity of Mum and Dad could leave parents facing an “uncertain retirement”.
With the average cash contribution rising to £24,100, parents are increasingly looking to their hard-earned savings to support a loved one.
According to the report, nine per cent of parents are cashing in lump sums from their pension savings, seven per cent are using their pension drawdown and six per cent are drawing on their annuity income.
Meanwhile, just over half (53 per cent) are using cash to fund the contribution.
Because of this, more than a quarter (26 per cent) of parents who contributed towards a family member’s property purchase “are not confident that they have enough money to last retirement”.
In fact, one in 20 parents (six per cent) have been forced to postpone retirement to top up their savings.
To combat this, parents are increasingly considering alternative methods to help their children without dipping into their savings. Unlocking housing wealth with equity release, for example, is becoming increasingly popular with over-55s. According to the report, 16 per cent of parents are using equity release to financially support their children.
Commenting on the study, Chris Knight, Chief Executive, L&G Retail Retirement said: “There are a vast range of considerations today’s retirees face when it comes to planning their finances, from whether they can afford to help their children buy a home, to setting aside funds for any future care needs they may have.
“Parents and grandparents across the UK want to see their loved ones settled in homes of their own and are giving generously as part of the Bank of Mum and Dad. Many are using their pensions and savings to help out and unfortunately, this could be leaving some facing a poorer retirement, especially if they don’t get the right advice.”
Here at Carter Lemon Cameron LLP, we can offer expert legal advice to ensure that the loan or gift is properly documented so that any disputes are avoided later down the line in case circumstances change.
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