We have spoken to two of our advertisers, David Pearn from Oakwood Mortgage Services and Helen Enyon, from Wills Etc for advice on this subject…
Oakwood Mortgage Services
For many younger people struggling to get a foot on the property ladder, the bank of Mum and Dad is the only option. While rent takes a huge chunk out of their income and the requirement is for increasingly onerous deposits, two in five renters do not believe they will ever be in a position to buy a property. That’s where Bank of Mum and Dad comes in, and increasingly, the bank of Granny and Grandad.
If the bank of Mum and Dad was a high street lender, it would have been the UK’s 10th largest in 2019. Collectively, parents paid out £6.3bn to give their children the final push towards home ownership.
This phenomenon has its consequences, however. With prospective retirees facing spiralling living costs and potential care fees, their generosity is directly impacting their own future. According to a report from Legal & General, 15% of over-55s accept a lower standard of living after funding their child’s property purchase. Many are hitting their pensions savings to scrape the cash together.
In 2019, nearly a third of 18 to 34-year-olds received financial help from their Grandparents to get a foot on the ladder. Coming from a generation where home ownership was much easier to achieve and pensions easier to save for, they are more likely to have spare money available than their own children, who are already feeling the strain of saving enough to fund their later life.
However, there are ways of helping them out that don’t involve putting your financial security at risk. While the bank of Granny and Grandad is certainly alleviating the pressure on parents, it’s not wise to rely solely on their support.
There is a range of government schemes available to prospective homebuyers that can help them buy a property without a significant cash boost from family members. The Help to Buy: Equity Loan, the Help to Buy: Shared Ownership scheme and the Lifetime ISA (LISA) can all help boost your child’s ability to buy their first home.
There are more ways to assist your children financially than just helping them buy a property – especially if you get started early. There is a range of savings and investment options that allow you to start providing for your child’s future at an early age, putting them in a better financial situation in adulthood.
Your home may be re-possessed if you do not keep up repayments on your mortgage.
The housing market is now open, and many first time buyers are hoping to buy for less than before lockdown. The one problem is that the days of 90% loan to value are gone. So the bank of Mum and Dad is often the only alternative!
Being the bank of Mum and Dad seems a great idea. The problems of helping children buy however can be numerous. We at Wills–etc believe that before you help your children you must get the right advice.
For a start is a loan, or is it a gift?
A loan must be documented and confirm all the necessary terms as to how the loan is to be repaid, what happens on the death of a party, what happens on a future sale of the property.
A gift has to be an outright gift with no strings attached. If not you might be caught by the Reservation of Benefit Rules, which will affect how much Inheritance Tax will be due on your Estate. A gift can also be caught by the Pre Owned Asset rules too! Whereby you could end up paying this additional tax for years to come.
Protecting your family
If you have more than one child and you cannot afford to help all of your children with their purchases. We can help you update your Will provision to ensure that all your children are fairly treated.
If you are giving to a child and their partner or spouse, and they spilt up. We can put documents into place to protect the funds! We will advise you as to who should be, and who should not be on the title deeds.
Tax Advice for you
Whether it is a Loan or a Gift, your tax position is unique to you, and we at Wills-etc believe as such you must take proper advice.
We will discuss with you what you want to do and explain to you how to best achieve this in a tax efficient manner. We will confirm what legal documents should be put in place. Making gifts or loans to family members otherwise, and without proper advice… can have terrible unforeseen consequences.
What we do
Wills-etc can advise you on Estate Planning, Tax Advice, Family Loan Agreements, Wills and associated documents. For a no obligation chat call us on 01483 564833 or email firstname.lastname@example.org