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Intergenerational lending is on the rise

by: David Finlay
  • 28/02/2013
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Intergenerational lending is on the rise
The recent news surrounding financial education becoming compulsory in all English schools as part of the new national curriculum reminded me of a very old joke.

Teacher to pupil: If you had five pounds and you asked your dad for another five pounds, how many pounds would you have?

Pupil: I’d have five pounds Miss.

Teacher: Come on you know better that.

Pupil: Yes Miss and so do you, you know my dad’s Scottish.

Yes very funny and as a proud Scot it’s always been rumoured that we were taught from the cradle to be canny with our money, so it’s about time that the Sassenachs caught up!

Of course there remains a big gap to overcome in solving the current generations’ financial problems and whilst I’m not suggesting that placing more emphasis on money management in schools and amongst the young and vulnerable will solve all future debt issues, it is crucial and does affect many aspects of everyday life.

A major factor that sometimes creeps under the radar in terms of its size, scale and potential impact which is intergenerational lending. Indeed, recent analysis from Savills suggests that intergenerational loans to provide deposits for property purchase have soared from around £8bn five years ago to more than £18bn in the current market.

It goes on to suggest that rising numbers of parents and grandparents are selling the family home and downsizing to release equity in bricks and mortar to fund younger relatives’ home purchase deposits.

It’s evident that a good proportion of this financial support is related to helping potential buyers in their homebuying requirements but it’s also become increasingly apparent that it’s not just first-time buyers who are struggling to raise a deposit. A recent survey revealed that over a quarter of second-time buyers are relying on their parents or other family members to help make up a deposit for a new home.

Of course intergenerational lending is nothing new and nor should we treat it as a new manifestation. However, the huge hikes experienced in house prices over recent years means there is little doubt that this need will continue for the foreseeable future and beyond.

We must carry on finding new ways for potential homebuyers to receive the necessary support to achieve their homebuying goals. As for the ones currently sitting on the home purchase sidelines raising a hefty deposit is certainly nothing to joke about.

David Finlay is intermediary managing director for Barclays

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