Bank of mum and dad risk blowing pensions by lending £6.3bn to first-time buyers to help them beat unaffordable house prices
PARENTS who lend their children money to help them onto the property ladder are putting their pensions at risk.
Last year, parents and grandparents handed out £6.3BILLION to help first-time buyers in the family beat unaffordable house prices, research by insurer Legal & General and think tank Cebr found.
On average, the bank of mum and dad gifts first-time buyers between £6,000 and £24,100 to help them with homeownership.
It comes alongside reports that first-time buyers need to save for a decade to get enough for a house deposit in some areas of the UK.
Nearly a fifth of over-55s have gifted cash for a deposit but 44 per cent of parents do it without getting expert advice leaving themselves at risk of having to go without in retirement.
Even though 53 per cent of those surveyed are using their savings, nine per cent are cashing in lump sums from their pensions and another 7 per cent are using their monthly retirement payments to help.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa – It’s a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there’s a maximum limit of £3,000 which is paid to your solicitor when you move.
Help to Buy equity loan – The Government will lend you up to 20 per cent of the home’s value – or 40 per cent in London – after you’ve put down a five per cent deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa – This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25 per cent on top.
Shared ownership – Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25 to 75 per cent of the property but you’re restricted to specific ones.
“First dibs” in London – London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
Starter Home Initiative – A Government scheme that will see 200,000 new-build homes in England sold to first-time buyers with a 20 per cent discount by 2020. To receive updates on the progress of these homes you can register your interest on the website.
As a result, more than a quarter of parents don’t think they have enough money left to support their own retirement, while 15 per cent have already been forced to accept a lower standard of living.
Another 16 per cent said that they either have or would release equity to help support their children or grandchildren.
Savers are able to access some or all of their private pensions once they turn 55 but you can’t claim your state pension until at least 66.
But worryingly, it’s estimated that millions of Brits already risk running out of cash in retirement – without gifting funds to younger generations.
Chris Knight, Legal & General retail retirement chief executive, has put this down to people’s lack of understanding of pensions and retirement.
He said: “Retirement is much longer, and much more varied, than it used to be. Gone are the days of “once and done” retirement decisions.
“Informed choices in the run-up to, and at the start of, the retirement journey can make a huge difference when it comes to being able to fund the retirement people really want.”
What is the retirement age in the UK?
GOT your sights set on retiring on a sunny beach? You may need to wait longer than you had hoped.
- The current age for retirement for men is 65, and for many years was 60 for women but that changed last year.
- To calculate the exact date that you will access the money, you can use the
- More questions? Here’s our definitive guide to life as state pensioner.
Helen Morrissey, pension specialist at financial provider Royal London, added: “While it is natural that parents want to help their children get on the housing ladder it must not be at the expense of their own financial security in retirement.
“Financial circumstances can change quickly and parents must take advice before lending money to their offspring on whether they can genuinely afford to manage without this money over the long term.”
Many mortgage lenders now offer parents a way of helping their children buy a home without them having to gift cash – but they’re not without their own risks.
The Post Office’s Family Link mortgage, for example, sees borrowers take out a 90 per cent LTV mortgage with the 10 per cent deposit secured against the parent’s home, as long as they’re mortgage free.
Buyers then make two separate monthly repayments over the first five years of the deal – their own mortgage payments and one towards the “assistor’s mortgage” which is interest free.
First-time buyers can also borrow 100 per cent of the value of the home with Lloyd’s Lend A Hand mortgage, as long as their parents can stump up the cash for the deposit.
Instead of going towards the equity of the property, the deposit money is then locked away for three years in a savings account that pays 2.5 per cent interest before it’s refunded.
But of course, if anything goes wrong, for example if the homeowners can’t keep up with the repayments, the money will be taken from the parents’ savings account.
We previously spoke to a young family from Leicestershire who bought their £131,000 three-bed house using one of these deals.
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