16th April 2019 at 2:57pm
Whatever stage of life you’re at, you’ll probably recall how much you craved independence by the time you reached the end of your teenage years. It’s an exciting time for new experiences, relationships and freedom.
Parents can be just as keen to get their own space at long last – and their own freedom.
And if the younger generation achieve their own financial independence, there can be a lot to be gained for everyone.
Getting onto the property ladder
Life can be tough when you’re setting out on the journey into adulthood. But for ‘Millennials’ in their 20s and 30s the challenges of student debts, low wages and high rents make it harder than ever to get on the property ladder.
And while getting financial support from parents isn’t new, the cost of buying a home means more and more young people are faced with having to make at least one big withdrawal from the ‘Bank of Mum and Dad’.
Yes, parents are among the biggest lenders when it comes to that all-important property deposit.
Giving the next generation a hand
Recent research* shows that because a typical new buyer now needs the equivalent of 18 years to save for a deposit (compared to three years in the mid-90s) almost a quarter (23%) of respondents surveyed plan to ask their parents or family members to help them put together a house deposit.
And many parents are prepared to put aside some of their own goals and dip into general savings, property or their pension pots to support them.
A hand up, not a hand-out
It’s not about hand-outs, it’s about support. And while giving cash helps, many want to continue to encourage their children to have the ambition and drive to take control of their own future – with a bit of guidance on offer too.
Families have a major impact on the financial futures of our 18-35s with many using Mum in particular for complex financial advice, observes Guy Shone, journalist and CEO of Explain the Market, in Standard Life’s 2018 report** on millennial saving.
Another report last year*** suggested that more than 200,000 UK property transactions will be supported by parents, with a quarter of those digging into their pensions for the deposit – with many grandparents helping out too. Not surprising: looking after our families is second nature.
Using some of your pension?
But parents have to look after themselves too. If you’re over 55 you could consider using pension savings. However, it’s vital to remember that your money has to sustain you through a retirement which could last 30 years or more.
If you’re helping your children with a house purchase, you could perhaps take a share in their property, effectively reinvesting your money, although bear in mind the money might not be as accessible as you may need it to be. The property could fall in value too.
If you have wealth or your property is owned outright, you might be able to start to pass your money onto the next generation.
You could choose to make a cash gift towards the deposit on a home: many families make this gift out of their savings, even though it can be a large sum.
But if you’re reluctant to hand over a chunk of your hard-earned cash, you could look into specialist mortgages that allow parents to be the guarantor of the loan.
Some mortgages like this include parents’ incomes in the application, or secure the loan on the parents’ property.
Using property to release money
There are also a growing number of financial solutions that allow you to release some of the cash tied up in your home while continuing to live in it.
‘Equity release’ allows you to take the money as a lump sum or in several smaller amounts from the age of 55 – and you could consider using some of this to help support members of your family. This could involve a lifetime mortgage which is secured against your property or a home reversion plan where you sell part or all of your property and stay in your home.
Millennials: tackle your savings challenge
Grown-up children can do their bit too. Saving over a few years, say from the age of 18-25, could result in a decent pot of money to meet a house deposit of, say £30k or more.
The Lifetime ISA (LISA) is designed to help those aged 18-39 buy their first home or save more for retirement. You can save up to £4,000 every year in cash savings – you get interest – or stocks and shares investing, although the value of an investment can go down as well as up, and you could get back less than you paid in.
The real attraction is the bonus you can get, as long as you meet certain conditions.
For every £4, you get a £1 bonus, up to a maximum of £1,000 a year, to put towards your first home or retirement. That’s a 25% Government bonus top-up, and you don’t pay tax on your income or gains.
Find out more about the Lifetime ISA and how to get the bonus at Gov.uk.
For first-time buyers, there’s also the Help to Buy ISA, backed by the Government, which gives savers a bonus on top of their savings.
Again, for every £4, you get a £1 bonus, up to a maximum of £3,000.
The Help to Buy ISA has its own set of conditions and do be aware that it’s due to stop later this year so if it’s of interest, you’d need to act soon.
If the Bank of Mum and Dad can help the next generation – who don’t have it easy – to get started, it’s no bad thing.
But being in control of your financial future is important, so it’s worth thinking about it carefully – and taking financial advice if you need to.
The information here shouldn’t be taken as financial advice. Laws and tax rules can change in the future and will depend on your own circumstances.
Standard Life’s report** 2018
Legal and General, 2018***