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Ian Cowie

Ian Cowie joined The Daily Telegraph in 1986 and has been personal finance editor since 1989. He is @iancowie on Twitter.

How house prices and debts are building ugly tensions between parents and their children

By Ian Cowie Your Money Last updated: September 8th, 2010

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Baby boomers are enjoying the fruits of decades of house price inflation

The gap between baby boomers, who continue to enjoy the wealth-enhancing effects of decades of house price inflation, and their adult children, who are burdened with soaring debts and the worst financial crisis since the 1930s, is growing wider. Several independent reports published today suggest these macroeconomic trends are creating ugly tensions in millions of homes and there may be trouble ahead for many parents and their grown-up children.

First, and most encouragingly for those of us of a certain age who bought our homes more than a couple of decades ago, there is research based on Land Registry and Office for National Statistics figures which shows that Britain’s pensioners own property worth an eye-stretching total of £775bn. Better still, despite the recent mortgage famine causing prices to fall at the first-time buyer end of the housing market, pensioners – who tend to own their homes outright – continued to enjoy property price rises in most regions of the country.

As a result, according to Key Retirement Solutions, homeowners aged over 65 saw their wealth in bricks and mortar rise by an average of more than £1,700 during the last three months alone. As you would expect, these riches are distributed very unevenly; nearly a third of all the country’s property wealth is owned by pensioners in London and the South East. They own housing, unencumbered by mortgages, with a market value of £250bn.

All this makes a refreshing change from another report, this time from the insurance giant Aviva, which paints a familiar picture of pensioner poverty. It claims the average income for people aged over 55 is just £1,313 a month – much lower than national average earnings – and that a quarter of people in this age group have been forced to dip into long-term income-generating savings to pay unexpected ‘rainy day’ expenses during the last five years.

Aviva found extremes of rich and poor among pensioners. While the majority – or 59 per cent – of older people have a monthly income of between £751 and £2,500 per month, about a fifth – or 21 per cent – have monthly incomes of more than £2,501 while the same percentage live on less than £750 per month.

Sadly, this is not surprising. But the growing financial plight of younger adults is building tensions between the generations that may create some ugly scenes in homes across the country in years ahead.Santander – the Spanish bank that bought Abbey, Alliance & Leicester among others – surveyed 2,000 people to come to the conclusion that student debt and shortage of jobs for young people has created a generation of what it calls “baby boomerangers”.

These are adult children aged over 18 unable to leave their parents’ home who seem to be slouching on sofas across the land, resenting Mum and Dad’s good fortune. More than four in 10 of the families affected see no hope of these young adults flapping their wings and finding a home of their own any time in the foreseeable future.

Reza Atta-Zadeh, a director of Santander, says: “The term ‘flying the nest’ could soon be made redundant as the credit crunch and rising cost of living is altering the structure of Britain’s families.”

Finally, the most disturbing research published today, suggests that one in five young adults admits to “looking forward” to a receiving an inheritance. More than one in 10 said they were relying on these future inheritances to pay off debts or provide a deposit on their first home. A ghoulish 3 per cent of the 1,300 people questioned by the websiteMyVoucherCodes said they would rather have the money than keep their parents alive.

Whether this demonstrates rising financial desperation and falling moral standards among the young – or merely the reality TV generation’s casual candour about subjects their parents would rather not discuss – is open to question. But the coincidence of these four reports today underlines the growing gap between “have it all” baby boomers and their debt-laden adult children.

Happy families will ease these tensions by orderly transfers of assets between the generations. The simplest way to beat inheritance tax (IHT) is to “give with warm hands” or more than seven years before the donor dies, thus rendering all gifts entirely IHT-free. No wonder the Bank of Mum and Dad is reckoned to be supplying more first-time buyers’ deposits than any other financial institution in the land today.

But not all parents can afford to help their adult children in this way – and others do not want to do so. For these families, inter-generational tensions are likely to become worse and there may be trouble ahead.

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