The Victorian solution that's letting Britons cover the cost of living

The notion of an extended family living under one roof may be reminiscent of the Victorian era. But thanks to a combination of pension underfunding, the spiralling cost of childcare and residential care for the elderly, pressure on incomes and rising house prices, a radical change is taking place in the way British families live.

In continental Europe, families have long lived together under one roof, but there are now signs of a return to such arrangements here in the UK. In fact, recent figures from the insurer Prudential suggest that more than 80,000 UK households are now "3G" families, defined as three generations living together. The phenomenon could be set to grow as the squeeze on retirement income means more pensioners opting to live with children and grandchildren.

Another insurer, Legal & General (L&G), in its report The Changing Face of British Homes, has found that while single-parent households and people living alone are becoming ever more common, at the other end of the spectrum, and as the economy falters, we are also seeing a return to multi-generational living.

"Our findings show that more than 80 per cent of people are making significant changes to their home life as a result of current financial uncertainty," says Garry Skelton from L&G.

Skipton building society also notes a trend towards this kind of cohabitation and predicts that the number of families living in this way in Britain will triple over the next 20 years, from 75,000 to 200,000. That said, being a 3G family isn't without its financial burdens.

"For the middle generation, providing support for both the younger and older generations could have a detrimental impact on their ability to save adequately for their retirement," says Prudential's Gary Shaughnessy. "In turn, they too may eventually become financially reliant on their children in old age.

"Three-quarters of parents [in our study] are worried their children will be unable to buy a property and will live at home until they can afford a deposit – which could be well into their adult lives."

Nonetheless, there are certainly plenty of tangible financial benefits to having several generations under one roof. Incomes can be pooled and bills and expenses shared out. Cheaper living costs mean that family members have the opportunity to pay back debts and save for the future.

Childcare is also on tap, which can make a real difference financially, given that the average cost of a full-time nursery place for a child under two is £159 a week, according to the Daycare Trust, the national childcare charity.

At the same time, children can ensure that elderly parents are looked after in a family environment as they grow old, rather than forced into care homes with high residential fees.

"This solution effectively solves the problem of who looks after granny and who minds the children," says Jonathan Haward, managing director of the County Homesearch Company. "It can allow families to live and work together in a way that many others cannot in today's world."

But before you head down this route, you need to plan carefully. "Consider what might happen if someone decides they want to move out," says Melanie Bien from the mortgage broker Savills Private Finance. "All names should be on the deeds, but ideally there should also be a legal agreement drawn up saying what will happen if one of the couples or individuals want to leave."

It's also important, she adds, that all family members know their financial responsibilities in terms of the mortgage and other bills.

The division of chores can be another source of frustration; families living together should draw up a rota from the outset. And crucially, everyone needs to have their own space, to be allowed some independence within the family home. If space is available, a granny flat, for instance, can be invaluable here.

Given the expense of moving home, it may make financial sense to pay for an extension, rather than trying to find the extra money to buy a larger property outright, especially if you can release some equity in your home to fund this.

Finally, once you have chosen or made improvements to your multi-generational property, make sure you utilise all the space available, such as basements and attics. In that way, you can give all members of the family as much room as possible within what could be a rather cosy cohabiting community.

One mortgage, one set of fuel bills – and two built-in babysitters

Kam and Kulbir Dhinsa have three generations of their family living under one roof at their home in Leicester. Their household arrangements have significantly eased the pressure on the family budget and enabled Kam to go back to work after having a baby.

The family extends from the couple's son Akaal, now 20 months old, through to Akaal's grandparents, Harmesh and Gian, both in their late 50s.

The "3G" family has lived in this set-up for the past five years – ever since Kam, and Kulbir, now 30 and 32 respectively, got married. Prior to this, both had been living with their parents.

The Dhinsas were keen to keep all three generations together and took the decision to share a detached property with three bedrooms, two reception rooms, a garden and garage.

"Culturally, it was natural for me to move in with my husband's parents after we married," says Kam, who works as a marketing co-ordinator. "But the fact that we are living with Harmesh and Gian also means I can go back to work part-time, because we have babysitters on hand in the house and don't have to worry about paying for childcare. And as we only have one mortgage and one set of household bills, we have more disposable income as a family to do and buy the things we want."

Kam, who part-owns the property, says there are many advantages to living as an extended family.

"We spend a lot of time together, which is especially valuable for Akaal, who gets to see a lot of his grandparents. This arrangement means we will also be able to look after Harmesh and Gian when they are older."