" We need to look at what could help all generations achieve better financial security, enabling them to build savings and assets today, and sustain their financial adequacy through their later years too. "
- Bernie Hickman, CEO of Legal & General Retail
Financial gifts from the ‘Bank of Family’ to support home purchases are projected to reach £9.2 billion this year and fund 42% of all homes purchased by buyers under 55, according to new research from Legal & General and the Centre for Economics and Business Research (Cebr).
With average contributions hitting £27,400, this is the highest amount families have gifted since Legal & General began its research in 2016.
Gifting from parents and grandparents is set to soar even further with contributions predicted to hit £11.3bn by 2026.
This increasing reliance on the ‘Bank of Family’ underlines the challenges faced by would-be buyers who don’t have access to family support. The majority of recent or prospective Bank of Family recipients said they would have to delay their home purchase without financial help. One in five (21%) said they would have to delay their home purchase by more than five years, while one in 10 (9%) first-time buyers would not be able to buy at all.
The Bank of Family is digging deeper
With family contributions becoming increasingly essential for property purchases, more relatives are now being called upon to support aspiring homebuyers. Of the 335,000 property purchases the Bank of Family supports - 204,000 are funded with assistance from parents, 42,000 are bought with funds from grandparents, and 88,900 from other family members or friends.
While the majority say they use cash savings to help their loved ones to buy (48%), 40% use ISA savings and investments, and 12% are taking a cash lump sum from their pension pot to help.
Property wealth remains another key source of gifted funds within almost one in five families (19%), either through downsizing (12%), equity release (8%), remortgaging (4%) or a combination of these.
Half of family members (49%) providing financial support say giving the money has left them feeling less secure about their own financial position. A further one in ten (11%) say giving money has negatively impacted their standard of living.
To ease the financial burden, families are looking for other ways to help loved ones save for a house. More than a third (35%) of relatives have welcomed adult family members to live with them rent-free. A further 39% are open to providing similar support to their adult children in the future. Legal & General estimates that buyers save an average of £32,600 when living with family members, which they can put towards their deposit.
First-time buyers choosing between property and pension
In addition to saving on living expenses, young people are having to make tough choices to build a deposit, including cutting back on pension saving. For recent and prospective homeowners, one in seven (15%) have paused, stopped, reduced or have never saved into a pension in order to prioritise buying a home. This increases to one in five (19%) for first-time buyers, potentially compromising their retirement outcomes.
Calculations from Legal & General reveal that pausing pension contributions at age 30 for even one year could result in £8,068 less in retirement savings, and a four-year pause could cut pensions by £31,868.
Bernie Hickman, CEO of Legal & General Retail, commented: “This research shows that families across the generations are facing tough decisions as they try to balance the aspirations of today, with the needs of tomorrow. We need to look at what could help all generations achieve better financial security, enabling them to build savings and assets today, and sustain their financial adequacy through their later years too. Almost a quarter of families are using property wealth to help younger generations onto the property ladder, but this option isn’t available for everyone."
