These materials are intended for use by Financial Advisers only

OneFamily Adviser

How are parents financially supporting their grown-up children?

Children are living at home for longer, often well into adulthood. The number of people aged 20-34 living with their parents increased from 2.4 million to 3.5 million in between 1999 and 2019, according to the Office for National Statistics.

More and more parents are financially supporting their children for longer, with some even helping the get a first foot on the property ladder.

Big savings

Adults living with their parents are making big savings. According to a 2019 survey adults living with their parents paid £230 per month to their parents in rent on average – a 67% reductions on the £700 median rent in England.

Regionally the savings are even bigger, with young people in London and Manchester making whopping 90% and 81% savings compared to the local median rent.

Location Average rent paid Average rent for area Saving
London £150 £1,473 90%
Manchester £145 £775 81%
Southampton £260 £750 65%
Nottingham £200 £575 65%
Bristol £360 £900 60%
Newcastle £240 £600 60%
Birmingham £300 £675 56%
Norwich £290 £625 54%
Leeds £340 £650 48%
Stoke £275 £450 39%

Buying a first home

One of the main reasons young adults are staying at home for longer is to help them save up a deposit for their first home. Some parents go even further in helping their children get onto the property ladder. Next we’ll look at some of the ways they do that.

Financial gifts

A financial gift could boost the child’s deposit, helping them get a better mortgage deal. It is worth remembering that the financial gift can become subject to inheritance tax in the future.

Parents who support a child to buy a home with a partner or friend can protect the money in the event of a break-up with a declaration of trust, declaring who the money is gifted to and who retains it.

Loans

Some use their property as security against a loan to help their children onto the property ladder.

Guarantor mortgages

Others become guarantors on a guarantor mortgage. It means they are responsible for making repayments if the child is unable to. The guarantor can be removed later if the child can prove their ability to manage the debt on their own.

Joint mortgages

Some parents buy a home with their children with a joint mortgage. This places the responsibility to make repayments with both parent and child. Their combined income can be used to potentially take out a larger mortgage.

Equity release

Parents who can’t give a financial gift, or who don’t want to borrow against their property can consider equity release to help their children onto the property ladder. It can also provide additional funds to pay for home improvements or provide additional retirement income.

Here’s an example of parents who used equity in their property to help their children onto the property ladder.

Mr & Mrs T (aged 68 & 65) are both retired and own a property in Sussex, mortgage free, valued at £625,000 and wish to assist their daughter, Eleanor, and their son, Daniel to get onto the housing ladder and wish to give each of them £50,000 towards their deposits as they have some savings but insufficient to allow them to purchase their own properties.

With a OneFamily Standard LTV Mortgage they can raise up to £187,500 but have decided that they only wish to raise £150,000 currently, £50,000 for each of the children and then they wish to purchase a motorhome to travel the UK as they are both retired and have been planning to do this on retirement. They have done some research on these vehicles and can buy from new for £45,000 giving them a bit extra to help with other extras. They both have decent pensions and are able to pay the interest on the loan but the children have also offered to contribute as they both have good salaries.

As they only wish to raise £150,000 they can apply for a Lite LTV Fixed Rate Lifetime Mortgage with OneFamily and take this on our Interest Payment product which allows them to pay the interest on the loan. However if they decide in the future that they no longer wish to make these payments they can convert to our Interest Roll Up with Voluntary Payment option, which allows payments of up to 10% of the original loan per year if they choose to but is not compulsory.

At some point in the future they may wish to downsize and if they proceed with this after 5 years and repay the loan from the sale of the property they can do so free of any Early Repayment Charges, which only apply for 10 years on this product on a reducing scale basis.

This case study demonstrates the impact that good advice can have not just on an individual customer, but on several generations of the family.

Be the one who can

Find out more about OneFamily Lifetime Mortgages. You can help your customer release equity to help their children.

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