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Baby Boomers Threatened by Property Price Correction

The Bank of Mum and Dad

Some economic commentators are predicting that there could be a price correction in the housing market before too long. They believe that this could signal a drop in prices of anywhere between 20 and 40%. In the late 1980s and early 1990s, for example, prices fell by 40%.

Whilst a fall in prices would be welcomed by those would be buyers who have struggled to get into the housing market because of the seemingly relentless rise in prices, at the other end of the age-scale, those banking on the equity in their property to see them through retirement are unlikely to view the news in quite the same light. Those likely to feel the effects of a major fall in prices would include large numbers of baby boomers who are currently retiring with insufficient pension provision to see them comfortably through retirement.

Given that a couple in their mid-60s might realistically expect to be able to access around 25% of the value of their property under an equity release plan, then any correction could reduce the amount of cash available to them.

The Bank of Mum and Dad

The knock-on effect could mean that the Bank of Mum and Dad could find itself with less funds available to pass on to other family members. It’s estimated that around one in four mortgages are now assisted by parental contribution, and the need for financial assistance doesn’t end with the first property. Almost a third of homeowners looking to move up the property ladder, the so called ‘second-steppers’, need to ask their family for a loan or gift to bridge their funding gap too. Research from Lloyds Bank shows that the support they are likely to need is on average £21,231.

However, while it’s natural to want to help struggling offspring with their property purchases, it’s important for parents to consider their own needs first, and not to give away money that could jeopardise their retirement. The short-term satisfaction gained from helping could easily be replaced by long-term problems if they were to find themselves short of money in later life.

If you could use some advice about planning your retirement, taking equity out of your home, or helping younger members of your family with their property needs, then do get in touch.