Rising house prices are widening the gap between the relatively wealthy and the less well off and are in danger of excluding sectors of society from ever owning their own homes.
Research from IFA Promotions shows the extent to which parents are helping children get onto the property ladder. An estimated four million parents, or 38 per cent, have put up cash to help with property purchase for a child or intend to do so.
One in eight parents have lent, or are expecting to lend, at least 20,000 and a growing number are prepared to act as guarantors for a larger mortgage than the adult child’s income would otherwise support. Currently, one in eight parents provide support by acting as the guarantor for a mortgage, with 36 per cent expecting to do so in the future.
A quarter of parents are contributing between 1,000 and 6,000 towards their offspring’s house purchase, while 13 per cent provide 20,000 in financial support. More than three quarters of these parents don’t expect the money lent to be repaid.
This is fine, provided you have parents or some other relative who can afford to put their hands in their pockets to the tune of 20,000 or more. Many parents are raising the cash by simply remortgaging their own homes for a larger amount to release cash for the deposit on their offspring’s property.
But what will happen to those children whose parents don’t own their own home and therefore can’t release equity to help their offspring? Figures from the Council of Mortgage Lenders reveal that the average deposit put down by first-time buyers is about 20,000. Few of these FTBs will have saved this money themselves.
But if putting down such a large deposit is becoming a pre-requisite of being able to buy a home of their own, large numbers of young people are in danger of never being able to get onto the property ladder – not as long as property price inflation exceeds wage inflation. Owner occupation could be in danger of becoming the preserve of the relatively affluent middle classes.
Couple this with the huge burden of debt that young students now accumulate while in higher education, and the outlook for some graduates is depressing if they have no family wealth to call on. One of the more gloomy statistics revealed by the ONS is that only 30 per cent of families living in rented “social housing” have any member of the family working. What hope is there for the children of these families of ever becoming homeowners?
There are other long-term implications of parents financially supporting their offspring into adulthood. If parents are handing over cash now to help a child buy their own home, this will reduce the amount available to supplement dwindling pensions.
IFAP research shows that almost two thirds of parents plan to help out using long-term savings, with one in 10 relying on inheritance to provide the money. This money was probably earmarked to supplement pension and giving it to a child will leave the parent with potentially less income in retirement. Only half the working population have any private pension and, of those who do have an occupational or personal pension, many millions of people have not saved enough for a comfortable retirement. Helping out the children can only make this situation worse for some.
Research by lenders have revealed that an increasing number of homeowners say they are relying on their property to supplement their pension in retirement.
On the other hand, a survey by mortgage lender Bradford & Bingley shows that homeowners are not keen to downsize to release capital to supplement pension income, with 85 per cent saying they want to stay put. It also shows that only one in five homeowners would consider downsizing and a quarter would prefer to return to work, rather than sell up to release capital.
Passing on money today to the next generation, rather than waiting for them to inherit, may have beneficial Inheritance Tax implications. But with increasing longevity, parents, in their desire to help their children, may be underestimating the amount of money they will need to live comfortably in retirement.Money Marketing
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