Parents told to seek advice before lending to their kids

Parents told to seek advice before lending to their kids

Most parents do not seek financial advice before supporting their family members in joining the property ladder, putting them at risk of financial disadvantage, research from Legal & General and consultancy Cebr has shown.

In a report released today (28 August), 77 per cent of the so-called bank of mum and dad were found to have helped family members buy a property without consulting a financial adviser or seeking information online.

As a result, about 17 per cent of parents and grandparents aged over 55 were deemed to have been financially disadvantaged.

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Legal and General had identified more than 50,000 transactions from the bank of mum and dad in 2018 that were at least in part funded by pension savings, and 23,000 supported by annuity income.

The survey work was carried out by YouGov and Censuswide among 1,002 adult borrowers and 2,010 adult lenders in the first few months of this year.

It found equity release was becoming increasingly popular as an option to fund a family member’s property purchase, with almost 44,000 housing transactions, roughly 14 per cent of all bank of mum and dad transactions, falling into this category.

Chris Knight, chief executive at Legal & General Retail Retirement, said the bank of mum and dad continued to play a major role in the housing market, but warned the current generation did not necessarily have the wealth to support their loved ones without impacting their own retirement plans.

Mr Knight said parents and grandparents should seek advice to make sure lending will not leave them short of funds, as they dig into their pension pots, balancing the housing needs of their children and grandchildren with their own retirement goals.

He said: "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."

Mr Knight said while the government addressing the housing crisis by delivering more affordable homes was key, so too was addressing the shortfall in retirement planning.

He said: "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."

Sarah Coles, personal finance analyst at Hargreaves Lansdown, pointed to alternatives to be considered before parents sacrifice their own financial security in order to help their children onto the property ladder.

She said: "Parents do not want their children to struggle, so when they face the monumental task of saving up for a home of their own, it is only natural to feel compelled to help - it is why more than one in four of all first homes are bought with at least some cash provided by parents.

"But handing over an enormous lump sum is not your only option: there are alternative ways to help your offspring onto the housing ladder."