Do young adults just want to live at home with their parents? The numbers suggest so, but given the state of their finances and house prices, they haven’t really got a choice. It’s easy to blame the spendthrift youth of today, but much is out of their control, and either way, it’s always the parents who have to pick up the pieces.
New data from the Office for National Statistics (ONS) showed that almost 5mn young adults (those aged 20 to 24) in England and Wales lived with their parents during the last census in 2021 – a rise of 14.7 per cent from 4.2mn a decade earlier. This includes more than one in 10 people in their early 30s. While the data was collected during the pandemic, adults living with their parents has been a “continuing trend rather than a result of the pandemic”, according to the ONS. And, as this trend develops, it’s becoming increasingly important in where savers spread their cash and how they invest.
A young adult’s dream of owning a property without support has all but disappeared in most parts of the country. As a result, more and more pension saving is being spent on helping out offspring. The cost of an average UK home is now roughly nine times the median income, according to Schroders. The average UK house price was £288,000 at the end of February, according to the ONS – 5.5 per cent higher than a year earlier. The average age of a first-time buyer is now 33, according to official statistics: young adults simply do not have the legs to climb up the property ladder alone.
It’s not going to get any easier. The Bank of England’s decision to hike interest rates up to 4.5 per cent could make mortgages even more expensive. And while this may reduce demand for housing, and prices fall, it’s not always black and white, as IC's economics writer Hermione Taylor explains in a recent article. Either way, the total cost of buying a home is higher.
So what can parents do to help? Well, there are a plethora of options. They can of course gift, but must be conscious of the seven-year inheritance tax rule, and also ensure they can clearly show the money trail, otherwise banks will be hesitant to lend. Some banks offer reduced interest rates if a parent, with substantial financial backing, signs as a guarantor, although these are rare. There are also parent-child offset mortgages, where banks will lend to a child if the parent places substantial savings with them. The most important thing is to ensure you have covered every possibility and looked at the whole mortgage market. There are specialist lenders that might meet your needs and even the mainstream banks have niche deals that could work for you. A good broker can go a long way.
Getting your children on the housing ladder as soon as possible not only frees up your own home, but it allows them to leverage the potential long-term gains associated with property ownership. It’s the first step to ensuring their own financial security and effectively no different to a Junior individual savings account (Isa) or Junior self invested personal pension (Sipp), although with fewer tax benefits.
Young adults living at home are a worrying sign and a wake-up call that parents might need to help their adult children prepare for the future.
