Press release -
The Illusory promise: 1 in 6 FTBs are funding their home purchase from a parental loan yet 87% have no proper agreement in place.
Parents are loaning an average of £24,347 to help their children get on the property ladder compared to an average of £29,132 for those who gift the money
Majority of parents do not formalise an agreement with their house buying children and are failing to provide a deed of gift or letter of intent which could put them at risk legally.
Only one in five millennial buyers agree a monthly repayment plan with parents – paying back £500 a month for an average of 4 years (but 23% will need to renegotiate)
Post Office Money and The Money Charity create a ‘Bank of Mum & Dad’ conversation guide to help both parties reach a family financial agreement that will protect their relationship
One in six first-time buyers (16% - 2.2 million buyers) are entering a long-standing loan agreement with their parents in order to get on the housing ladder, according to new research from Post Office Money. *
Previous research by the Post Office had found that a third of first time buyers (35%)** are buying homes using a financial gift or a loan from their family, a common occurrence as cash-strapped young people lean on their loved ones to tackle the UK’s tough housing market.
A new investigation into 1,000 first-time buyers who needed financial support and 500 generous parents, has found that increasingly high house prices have driven some younger buyers to borrow an average of £24,347 from their parents towards a deposit.Recent figures from the Office for National Statistics, found that first-time buyers are spending £210,928 on average on a property, with £160,442 mortgage advanced – meaning that young buyers are funding approximately 50% of their deposits (£50,486) with loans from their parents.
Parents on the whole are very keen to help their children realise their property ambitions (83%) but commonly have to make this agreement on the understanding it will be a loan (38%). This is to protect parents’ own finances when they can’t afford to give the money outright (31%) but also to help them provide a similar level of support to their child’s siblings (26%). Young buyers are far more likely to be hesitant about borrowing money (82%), often because they want to maintain a good relationship with their parents (20%)
Let’s make a deal
Despite the large amounts of money being shared, families have neglected to formalise loan agreements, most commonly, attempting a verbal agreement (29%) and some not discussing the terms of the loan at all (19%). Only 16% consult a third party, such as a solicitor. Furthermore, the majority of parents (83%) are neglecting to put a letter of intent or deed of gift in place to formalise their financial support. Without this, both parents and buyers are left legally vulnerable and could even be pursued for additional costs such as stamp duty.
For those that do sit down to discuss the terms of their loan, many factors are commonly considered to help ensure repayment is fair. Families will consider the child’s household income (42%), the potential for their income to grow over time (31%) and their cost of living (29%). The debates often include a consideration of what will happen if either the buyer (17%) or the parents (13%) suddenly lose their income.
Despite this, only one in five families will agree a regular repayment plan (21%), with parents showing a great deal of trust in their children to pay them back ‘at some point’. On average young buyers who borrow pay back their parents £500 amount a month*** for an estimated 4 years and are very committed to honoring these repayments. Only 4% of young buyers who borrow will miss a payment but much more often families will have to renegotiate, due a to change in circumstances (24%)
Home Hesitations
When accepting a gift, young buyers are often initially concerned about feeling indebted to their parents (24%), particularly if there is a chance that their parents’ finances might be adversely impacted by parting with such a large amount of money (17%). Some young buyers are also worried that accepting a gift will compromise their financial independence (22%).
In comparison, millennial buyers who take out a loan from their parents, are more likely to be unsure of the agreement initially than those that receive it as a gift (82% vs. 71%); this is possibly because an ongoing financial relationship may present more opportunities for difficulty. Indeed, one of the biggest concerns for young buyers taking on a loan from their parents rather than a gift was that they wanted to make sure they keep up their repayments (20%).
Despite these worries, most buyers do not see these arrangements lead to difficulty in their relationship with their parents. Some families will even grow closer as a result of the generosity (15%)
Owen Woodley, Managing Director, Post Office Money said: “The level of support that the UK’s parents want to provide their children is truly heartwarming. High house prices and a challenging cost of living has meant that families have had to increasingly live out of each other’s pockets to make the most of their combined financial capability. Indeed, 77% of young people who receive money from their parents anticipate that they will support them financially later in life. Despite this, it’s important for everyone to be clear about the nature of their agreement so that everyone’s expectations are aligned.
Stephanie Hayter, The Money Charity said: “We have worked with Post Office to create this guide to help parents and adult children navigate what may be a pretty heavy, but very important conversation. This new aspect of your relationship with each other will impact your family dynamics as well as your finances, so it’s important you get this conversation right and make sure everything is carefully thought through. Then you can feel confident and enjoy the journey together.”
Corinne Sweet, Psychologist & Psychotherapist said: “Talking about money – even with our closest loved ones – can sometimes make us feel awkward. It’s important to try and see things from each other’s perspective in order to maintain a good relationship.
“Parents, should try to be sensitive to how their children feel about borrowing money and make sure that the details of the agreement are well-defined so that everyone is clear on what is expected. People borrowing from their parents should be patient and willing to have an open discussion about how the arrangement will work long-term, keeping in mind the big financial commitment their parents are making. Both parties should set aside time to sit down and talk about this in a place where they are both comfortable and won’t be distracted, making sure that neither of them is pressured into making a commitment straight away.”
So, if you’re thinking of offering or asking for financial support to get #OnTheLadder download the Bank of Mum & Dad Conversations Guide
Ends
Notes to Editors:
*Opinium Research carried out an online survey of 511 homeowners who received a gift from their parents or partner's parents toward their deposit; 510 homeowners who received a loan from their parents or partner's parents towards their deposit; 113 parents who provided their child or their child's partner with a loan for their deposit and 509 parents who provided their child or their child's partner with a gift for their deposit from 21 January to 01 February 2018
**Opinium Research conducted a survey amongst 1,009 millennials and 1,021 of their parents between the 5 and 10 of October 2017
*** While other figures used throughout the release are calculated using the mean average, the monthly repayment figure (£500) is taken from the median, in order to be most representative of the average FTB paying back their parent.
For more information, please contact:
Lily Cunningham, PR & Campaigns Manager Post Office
Lily.Cunningham@postoffice.co.uk
Twitter @postofficenews
Lansons
0207 566 9702 / 0207 294 3638 / 0207 294 3643
About Post Office Money
Post Office Money, launched in January 2015, brings together all of Post Office’s multi-award winning financial products under one umbrella as it seeks to become one of the leading financial services providers by 2020. Post Office Money will be available in branch, over the phone or online.
Bank of Ireland has supported customers in the UK for many decades and is the exclusive financial services partner to the Post Office. Bank of Ireland primarily operates in the UK through its wholly owned and separately incorporated subsidiary Bank of Ireland (UK) plc, which is authorised and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Activities related to the Post Office partnership are conducted within this entity and as such, all retail deposits up to £75,000 with the Post Office are protected under the UK’s Financial Services Compensation Scheme. At 31 December 2015, Bank of Ireland (UK) plc had a loan to deposit ratio of 89% with customer deposits of c. £21 billion utilised to fund customer lending of c. £19 billion (primarily comprising c. £15 billion of UK residential mortgages).
Winner of What Mortgage award for Best Variable Lender 2017.
About the Post Office
Post Office Limited has an unrivalled national network of over 11,600 branches across the UK, more than all the high street banks combined, and sits at the heart of many communities across the country.
It provides around 170 different services and products spanning financial services including savings, insurance, loans, mortgages and credit cards. Post Office also offers Government services, telephony, foreign currency, travel insurance and mail services.
99.7% of people live within three miles of their nearest Post Office outlet. For many rural communities the Post Office is the only retail outlet. Post Offices remain highly valued and trusted and are the focal point for many communities. For more information, visit www.postoffice.co.uk.
