24 August 2018

Feeling the squeeze, and sharing the pain - housing and the Bank of Mum and Dad

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, as mentioned in a previous article, 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.

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 we've argued that parental support is not the answer to the housing issues facing Britain.

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, we think the key to unlocking homeownership for the next generation is to build more.

Is it sustainable?

Another reason why the Bank of Mum and Dad isn't going to fix the housing crisis is that 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, our figures show parents are feeling the pinch. In our report, we show 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.  

Our infographic explains the state of affairs.

Is the Bank of Mum and Dad leading to an uncertain retirement?

For many, that 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’s meant raiding their pensions: our data has revealed that 73,000 say they’ve either cashed in pension pots or used funding from annuities to help family. One in ten says 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. We 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. We believe property equity needs to be included in retirement planning, and we are encouraging financial advisers to see this.

But our 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.