Parents and grandparents want to help but can they really afford to?
The high levels of unaffordability in the US housing market isn’t just an issue for the younger generations.
That’s because many parents and grandparents are keen to help out their children and grandchildren, even if that means cutting back on their retirement lifestyle.
A survey from the Legal & General Group has found that over one million US parents and grandparents helped the next generation of homeowners to the tune of $41 billion with 54% of that coming from their retirement savings.
In fact, 29% of ‘Bank of Mom and Dad’ (‘BoMaD’) lenders helped financially with homebuying but 15% said they are financially worse off as a result and 14% feel their future is less financially secure; 7% had even delayed their retirement due to helping out a younger homebuyer.
“The Bank of Mom and Dad is playing a major role in the U.S. housing market, but the generosity and support many people choose to provide family members is compromising their own quality of life,” said Legal & General Group Chief Executive Nigel Wilson. “This generation is helping kids and grandkids purchase property throughout the country, but it would appear that many don’t really have sufficient wealth to do so without impacting their own retirement plans. It’s disturbing to see that some Moms and Dads have even had to postpone retirement in order to help.”
Other ways that BoMaD lenders have helped with homebuying including raiding their IRAs or their 401(k)s (8% each); refinancing their own homes (7%); downsizing to a smaller property (6%); or even coming out of retirement (5%).
- 37% of BoMaD lenders give the money outright, meaning they don’t expect to recoup any of it; an additional 33% provide a loan with no interest
- 23% of parents and grandparents helped first-time buyers, while 4% helped those upsizing
- Those unable or unwilling to help family members financially cited 3 main reasons:
- Low income (25% of respondents)
- The belief that family members should be self-reliant (20%)
- Lack of savings (13%)
- 51% of lenders think it’s harder for younger generations to buy than it was for them, citing out-of-sight property prices (71%) and incomes not increasing (63%)