Unadvised 'Bank of Mum and Dad' lenders left financially insecure

Parents and grandparents aged over 55 are accepting a lower standard of living to help their loved ones onto the housing ladder, with 10% feeling less financially secure and 4% actually postponing retirement.

The number of ‘lenders’ accepting a lower standard of living was higher amongst those approaching retirement, including over a quarter (27%) of those aged between 55 and 64. Despite this, thousands will still help their loved ones using pension savings or income in 2018, with over 50,000 transactions partly or wholly funded by those cashing in their pension pots to provide a lump sum for a deposit and nearly 23,000 supported by individuals using their annuity income.

This year, the Bank of Mum and Dad is increasingly using equity release to help the homeownership ambitions of relatives. Legal & General’s research found that nearly 44,000 housing transactions, roughly 14% of all BoMaD transactions, were partly or wholly supported by equity release, nearly double the number using annuities and over twice as many as those relying on taking out a loan. However, it remains a largely underutilised source of funding, with just 4% of over 55s saying they had used equity release.

The research also found that BoMaD lenders were unlikely to take advice in regard to the impact their giving may have on their own financial future. Before gifting money to help family or friends onto the housing ladder, more than three-quarters (77%) did not speak to a professional adviser or even seek information online.

Chris Knight, CEO of Legal & General Retail Retirement, commented: “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.

“After years of record lows, increases in the base interest rate also provide the added challenge of a rising cost of borrowing. Nearly a fifth of those aged 55 and over face a lower standard of living after helping loved ones onto the housing ladder, with one in ten also feeling less safe about their financial future at a critical stage in their lives.

“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.

“Parents and grandparents across the UK are often digging deep into their pension pots to support loved ones, balancing the housing needs of their children and grandchildren with their own retirement goals. Worryingly, in the majority of cases these individuals aren’t taking advice before they ‘lend’.

“Addressing the housing crisis by delivering more affordable homes is key, but we also need to address the shortfall in retirement planning too. For our sector, financial services, that means rethinking the way we communicate with consumers. It means getting people thinking about retirement income earlier, helping them build their retirement plan and laying out all the options available to them. If we can do this, we can help people to be this generous without leaving themselves short - helping their family onto the property ladder, but also ensuring they have the best retirement they can.”