If your adult children still rely on you for financial help, you are part of the ‘Bank of Mum and Dad’. It's nice to know you can support your kids. But can you be sure that what’s good for them is good for you?
The ‘Bank of Mum and Dad’ is where parents give money to help their adult kids. You might think that once they are through school or university, they won’t need your support. But the cost of living, a lack of savings and rising house prices may mean you're still needed.
Research by Opinium for Saga Equity Release found that one in four parents over the age of 50 expect to provide financial support. That’s both in the coming months and in a year’s time.
Helping your children is a natural thing to do. But it isn’t always plain sailing. You should weigh up the pros and cons before getting out your cheque book.
Some benefits to the Bank of Mum and Dad include:
But there are a few things to consider:
If you want to help your adult child with a loan or gift, it’s best to state your aims clearly. Make sure they know if it’s a gift or a loan – with or without interest.
Giving a lump sum to your kids could make it easier for them to get a mortgage. With your money added to their deposit, providers don’t need to worry that a third party has an interest. This makes it a simpler agreement. But you might need to provide written proof that it is a gift.
You can give away up to £3,000 each year tax-free. You can also carry this over to the next year. So, two parents could gift up to £12,000, which could go a long way to help with a house deposit.
You could give more than that. But if the person giving the money dies in the next seven years, the gift will be part of their estate and could be subject to inheritance tax. The amount of IHT depends on the size of the estate and the time that’s passed since the gift was given. This is known as taper relief.
If you’d prefer the money to be a loan rather than a gift, you can draw up an agreement. It should lay out the terms, the interest rate, and when you want the loan repaid. You should also agree what happens if things change. Deaths, divorces and other life events could all affect the loan.
If the loan is towards a house deposit, this will need to be disclosed in any mortgage application. This can affect eligibility, as some lenders won’t accept a borrowed deposit or may reduce the amount they are willing to lend.
If you can't gift or loan a lump sum, you could look at other mortgages:
Saga Mortgages offers a range of ways to help boost the buying power of your children or grandkids. All being well, these options won't cost you anything. But you need to be ready if your child isn’t able to make the mortgage payments.
Opinium’s research shows the ongoing effects of the pandemic and the growing cost of living have affected how over-50s think about inheritance.
Over a third (34%) of people said they are now more open to different types of inheritance. The same percentage want to see their kids benefit from their estate while they’re still alive.
If you need to fund a loan to your kids, you have a few options:
Releasing equity from your home will reduce the value of your estate when you die.
The Opinium research showed 5% of parents aged over 50 are thinking of equity release.
This rises to 13% among those aged over 80. The most common reason cited is to support their family.
If you'd like to find out more, Saga Equity Release is no-obligation, no-pressure advice service provided by HUB Financial Solutions . It's here to help you find out if equity release is right for you. If after taking advice you decide to take out a Saga Lifetime Mortgage, there's an advice fee of £799.
To be eligible, you need to be aged 55 or over with a UK home worth at least £70,000.
There are many reasons why Mums and Dads like to step in and help where they can. But what are children relying on their parents to buy for them?
As with all parenting, a united front is key to good family dynamics. Make sure you’re both happy with the amount of money – and the way you’re offering it.
If you have more than one child, be open with the siblings too. Work out how you plan to support each child that needs help. That way you get to avoid any awkward secrets or jealousy that can divide a family.
Think about your own needs in later life. Make sure you can afford the cost of life, holidays, home repairs and care down the line.
Gifts, loans and mortgages could affect you and your children’s tax position. So, you should work this all out before you start.
Make sure you all know and agree to what’s happening. Be clear about whether the money is a gift or loan, and what happens if needs change.
The survey data is based on research by Opinium in April 2022 of 2,000 people aged over 50 with children over the age of 18.
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