New research by Slater and Gordon UK reveals that parents are pushing themselves beyond their financial limits in order to help their children onto the property ladder.
Spiralling housing costs are hitting the bank of mum and dad more than ever – with the average sum being loaned or gifted to help adult children to buy their first home rising to £18,505.
As a result one in seven parents are now in unexpected debt, while one in three say their financial security has been impacted by helping their child get a foot on the ladder.
More than three quarters have dipped in to their savings while one in six have cut back on expenditure while more than one in ten have cashed in their investments to get their children a mortgage.
One in forty has even gone as far as to downsize and sell their own home to raise the capital and nearly one in twenty has re-mortgaged.
The research commissioned by property law experts Slater and Gordon also showed that despite 16% of parents calling the money a loan, less than half expected to have the full sum returned.
Stephen Lintott, head of property at Slater and Gordon said, “There are a huge number of buyers who simply can’t afford to get onto the property ladder without the help of family members.
“The rising price of property has not just put pressure on first-time buyers, it’s also putting a huge strain on their entire family.
“The majority of parents will want to help their children as best they can. But we have found that many relatives say that their act of generosity wasn’t well advised and resulted in financial hardship or anxiety.
“Purchasing a property is the biggest financial investment most of us will ever make and when you add a third party to the equation it makes things more complicated.”
The research, which polled more than 500 parents that had helped their children get on the property ladder, revealed that nearly half felt obliged or pressured to do so, with two thirds saying that their children could not have done with without them.
Nearly half of those that are in debt because of their generosity said their children had no idea, while only a third said they were confident they could provide the same level of assistance to all of their children.
Many reported feeling stressed or anxious over their financial situation but despite this just 6% of parents regretted their decision.
One in 20 stepped in after grandchildren were born because they feared the current home was too small to bring up a young family while 43% said the stumbling block had been a cash deposit so they had lent them the cash to get them started.
64% said they were happy for their children never to pay them back, however 16% said they expected the money to be paid back.
Of those parents that considered the cash a loan, one in ten said their children hadn’t managed to pay them anything back at all yet.
The research also discovered that despite the average parent stumping up nearly 15% of value of the property they were left with no legal share or rights at all.
Just a fifth had sought legal advice before handing over the money and just 14% had any kind of legal documentation or contract in place to protect the cash should their child’s relationship break down or their financial situation should change.
Stephen Lintott added, “It’s so important that relatives don’t rush into any complex financial arrangements, but if they want to help they should seek the right advice.
“There so many factors that can change after you first decide to help a loved one that planning for every eventuality and not pushing yourself beyond your financial limits is vitally important.
“Relying on verbal agreements or just trusting that a loved one will honour an arrangement could leave a parent exposed with very little protection.”
Top 5 Tips for Helping In-Laws Buy Property
- Consider your options – you may be able to help in a number of different ways, gifts, loans, guarantees.
- Don’t rush into a decision – try to think about this as if it was a commercial decision and not an emotional one.
- Be realistic – don’t over stretch yourself financially.
- Take legal advice before entering into any significant deals.
- Think long-term – will I still be able to afford this if interest rates change, my child splits from his partner, I need to move or tap into my own home’s equity.
See related blog: How to Help Children Get on the Property Ladder.
Slater and Gordon are a nationwide law firm with offices in London, Manchester, Liverpool, Sheffield, Birmingham, Milton Keynes, Bristol, Derby, Cardiff, Merseyside, Cambridge, Edinburgh, Halifax, Newcastle, Wakefield & meeting rooms in Bramhall, Cheshire & in Hull, Yorkshire.