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Parents help with the deposit – but at what cost?

Parents help with the deposit – but at what cost?

Category: Mortgages

Updated: 04/09/2017
First Published: 06/05/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

We all know how difficult it can be to build up a nest egg, and saving for that first deposit can be even harder, particularly with rising house prices. That's why a lot of children are turning to their parents for help, and research from Halifax has revealed that many parents are answering that call – despite the fact it could leave them in financial hardship in later life.

The survey revealed that the bank of Mum and Dad is very much open for business, with around two-thirds (63%) of homeowners aged 20-45 only able to buy their property thanks to input from their parents, while 45% of parents put money towards a deposit.

It's becoming an expectation of all classes, not just the very wealthy, and this could put an even bigger burden on parental finances – particularly when you consider the fact that a lot of people don't buy their home until their thirties, the age when their parents may be approaching retirement.

"The growing expectation from first-time buyers that parents will fund the purchase of their home puts parents in a difficult position," said Craig McKinlay of Halifax. "More parents are dipping into their savings and don't envisage it being repaid, compromising their retirement funds."

In fact, the research found that nearly four in ten parents (38%) who gave financial help are concerned about their own finances in later life, with more than 90% not expecting their children to help them out in return if they needed it for the likes of care costs. Many dip into their own savings to help fund their children's deposit, something which could place a "significant emotional and financial burden" on aging parents, it said in the report.

Given that a typical first-time buyer deposit amounts to £31,000 it could put a huge amount of pressure on parents and could easily affect them in later life, which is why consideration needs to be given to ways in which help can be provided "without either party being overstretched or facing longer-term financial difficulty as a result," added Mr McKinlay.

But, there's a different branch to the bank of Mum and Dad too – not only are parents expected to help out with the deposit, but those with children still at home are upsizing in expectation of them living there even longer.

According to the Halifax survey a quarter of parents said their children had to move back in with them because they couldn't buy their own house, while separate research from Royal Mail highlighted the additional financial burden that this is placing on parents.

Far from the ideal of downsizing as retirement approaches, parents are instead finding that they need to move into a bigger home – with 21% of those who had moved house in the last six months saying they chose a larger property to prepare for their children staying with them into their late twenties. Potentially, this could mean a bigger mortgage and therefore higher repayments, and that's before parents are expected to help out with a deposit.

However, there are hopes that there could soon be Government intervention to prevent house prices getting out of control, with the Bank of England dropping hints that it would take action to cool the housing market after its deputy governor for financial stability said it would be "dangerous to ignore the momentum that has built up in the UK housing market".

Ideally, this could mean that prices may not continue to accelerate as fast as they have been over the last few years, potentially easing the pressure on parents to provide a larger deposit as a result. The increased availability of 95% LTV mortgages could help too as deposit requirements are constrained, while those needing to upsize could also find they're able to do so without such excessive costs – meaning parents could continue to help their children without putting themselves at risk in the process.

What next?

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