Extended financial families, where three generations live in one house, are set to increase dramatically in the UK over the next 20 years, says a new report.

Pension under-funding, the spiralling cost of residential care and pressures facing first time buyers will lead to radical changes in the way families live and the revival of the multi-generational household.

The report by the Skipton Building Society projects that in the next two decades there will be around 200,000 extended financial families (EFFs) in existence – compared to the current estimated 75,000.

This new social phenomenon will significantly shape the dynamics of future households. According to the report, over the next ten years one in 50 new households in the UK will be an EFF, rising to one in 25 in the following decade.

The report states that pension under-funding, coupled with increasing life expectancy, will play a key role in this renaissance and force many to consider more communal living arrangements. Previous research by Skipton Building Society revealed that a third of grown up children are prepared make the ultimate sacrifice and invite their mums and dads to live with them to guarantee their comfort in later life.

Further influencing this comeback will be personal privatisation, whereby responsibilities originally held by the state, including health, education and welfare will be transferred to individuals. The cost of residential care will hit Britons particularly hard, with many facing bills to the tune of £20,000 per annum or more, quickly wiping out inheritances and providing an incentive for a ‘granny flat' – an attractive alternative to state care.

But it's not just retirees shaping the restructuring of future households – homebuyers are also playing a part. The high cost of property and the impact of graduate debt are delaying first time buyers entering the market by three to four years, resulting in many staying at home longer to save for a deposit.

Also highlighted as a factor influencing families to pool their resources under one roof is the cost of childcare. According to the Daycare Trust, the typical cost of a full-time nursery place for a child under two is £128 a week, more than £6,650 a year; up 6.7% in the last year. For many parents this can be one of the largest monthly outgoings, restricting mortgage spending and preventing people from moving up the property ladder, which in turn will prompt parents and grandparents to buy one large home and have free child-care on tap.

Jennifer Holloway, head of media relations, Skipton Building Society, said, “Looking forwards, these issues are likely to get worse and so combining incomes and sharing mortgage repayments may well be the only alternative for some families."