If you’ve been thinking about helping your children or grandchildren financially, a new report shows just how many younger people are receiving help from their parents to get their first home – and the difference that makes to their future finances.

Levels of home ownership, particularly amongst younger people, has reduced significantly in recent years. But the importance that a helping hand from parents can play in making that a reality for their offspring has been put into focus by a new report on intergenerational wealth transfers from the Institute of Fiscal Studies (IFS).

It found that around half of first-time buyers in their 20s receive financial help to buy their home, with large consequences for their subsequent wealth accumulation

Those getting financial help receive an average of £25,000 – making up almost half of their deposit.

These wealth transfers help many of those who receive them to purchase a home sooner, while also enabling some buyers to put down a larger deposit as a proportion of the house price, substantially reducing their mortgage interest payments.

Other key findings of the new IFS report, funded by the Economic and Social Research Council, include:

• The homeownership rate for those aged between 25 and 39 whose parents owned their own home fell from 60% in 2009 to 51% in 2019.
• Among those whose parents rented their home, it fell from 40% to 22% over the same period.
• This means that the children of homeowners are now over twice as likely to be homeowners as the children of renters.
• Over half of those with university-educated homeowning parents received transfers when buying for the first time, with receivers getting an average of around £35,000.
• Of those whose parents rented their home, only 29% drew on financial help when buying their home, with receivers getting an average transfer of just £11,000.

Regional differences and long term impacts

Some big regional differences have also emerged, as well as how much young people can borrow as a result of receiving assistance:

• Among first-time buyers receiving financial help, those in the South East received an average of around £31,000, while those in the Midlands received £18,000 on average and those in the North received £17,000.
• Among first-time buyers who received transfers, those in their 30s and those buying in the South East were around twice as likely to be able to afford to buy their house without this financial help than their counterparts in their 20s and in the North.
• For almost two-thirds of first-time buyers, each £1,000 they receive from parents increases the value of the house they can buy not by £1,000 but by £10,000, assuming they must put down a 10% deposit. This is because their low savings restrict the deposit they can put down and determine the most expensive property they can buy.
• Using a typical transfer of £25,000 to put down a deposit of 25% rather than 10% of the house value would reduce the repayments on a typical five-year fixed rate mortgage taken out in 2018 by £8,500. This compares to a return of around £850 if putting this in a typical cash ISA.

As a result of this, financial help is likely to drive increased wealth accumulation into the future for those who receive more, compared to those who receive less or nothing.

What might this mean for you and family?

If you are contemplating assisting a family member financially, getting them onto the housing ladder looks like one very effective way to do so, enabling them to buy a more expensive property and/or reducing their outgoings into the years ahead.

The question is: what would gifting them money – either now or into the future – do to your finances in retirement?

Using your RetireEasy LifePlan you can see at a glance the impact that would have, and you can even run a series of scenarios to show the differences it would make depending on when you did that… and how much you gave them.

Making an informed decision like that can help you maximise the amount you can provide while minimising the risk to you. And, if your subscription has lapsed, just a few pounds a month can it back on track.