For many younger people struggling to get a foot on the property ladder, the Bank of Mum and Dad is the only option. With rent taking a huge chunk out of their income and the requirement for increasingly onerous deposits, two in five renters do not believe they will ever be in a position to buy a property, despite a desire to own a place of their own. That’s where the Bank of Mum and Dad come in, as well as ever more frequently, the Bank of Granny and Grandad.
If the Bank of Mum and Dad was a high street lender, it would have been the UK’s 10th largest in 2019. Collectively, parents paid out £6.3bn to give their children the final push towards homeownership. What’s more, the average amount lent per transaction shot up by £6,000 to hit a generous £24,100.
The Bank of Mum and Dad phenomenon is not without its consequences, however. With prospective retirees facing spiraling living costs and potential care fees, their generosity is directly impacting their future. According to a report from Legal & General, 15% of over-55s are accepting a lower standard of living after funding their child’s property purchase. While many are hitting their pension savings to scrape the cash together.
In 2019, nearly a third of 18 to 34-year-olds received financial help from their grandparents to get a foot on the ladder. Coming as they do from a generation where homeownership was much easier to achieve and pensions easier to save for, they are more likely to have spare money available than their own children, who are already feeling the strain of saving enough to fund their later life. On average, grandparents lend £7,400 to their grandchildren (roughly a third of the average 10% deposit). And 23% of lucky homeowners on the receiving end of this assistance don’t ever expect to repay it!
We all want the best for our children, but there are ways of helping them out that doesn’t involve putting your financial security at risk. While the Bank of Granny and Grandad is certainly alleviating the pressure on parents, it’s not wise to rely solely on their support. There is a range of government schemes available to prospective homebuyers that can help them buy a property without a significant cash boost from family members. The Help to Buy: Equity Loan, the Help to Buy: Shared Ownership scheme, and the Lifetime ISA (LISA) can all help boost your child’s ability to buy their first home.
There are more ways to assist your children financially than just helping them buy a property – especially if you get started early. There are a wide variety of savings and investment options that allow you to start providing for your child’s future at an early age, putting them in a better financial situation in adulthood.