Your clients helping their grandchildren

The average age of receiving inheritance is now 61. Longer life expectancies means that inheritance often comes at a time when people are largely mortgage free and beyond the big expenses of raising children.

So while children are still predominantly looking to their parents for help with deposits, grandparents are also generously stepping up to offer financial support, a ‘living inheritance’ of sorts; whether that’s in the form of cash, pension savings or releasing equity from their home.

With childcare costs rising, house prices seemingly out of reach for first time buyers and parents under increasing financial pressure – are grandparents playing an increasingly important role in young people’s lives?

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Are grandparents coming to the rescue?

Helping family members is nothing new, but intergenerational lending is becoming normalised with more young people reliant on financial support to help them get onto the property ladder. Initial deposits, particularly in London and the South East, can exceed the UK average of £33,127. And while many first time buyers will be exempt from Stamp Duty they won’t avoid the solicitor’s fees, removals costs and general outlay required to move home.

Parents may be the first choice for financial support with deposits, but nearly 1 in 10 people looking to buy their first home have asked their grandparents for financial help.

Our own research shows that grandparents have contributed £657 million to helping first time buyers in the UK. That’s around 27,200 homes for their grandchildren.

For grandparents wishing to help, there are a number of possibilities

Money could be taken from savings, drawn out of pension pots or through cashed-in investments such as Premium Bonds. And for some, the homes they live in can offer a solution via a lifetime mortgage. Around 16% of the homeowners that we interviewed had taken this option. A lifetime mortgage is a loan secured against your client’s home. It's paid back when the last surviving borrower dies or goes into long term care.

For many homeowners, the equity in their property will far outstrip that of any savings or pension pot they own. The money released via equity release is taken tax-free and HMRC legislation around ‘gifting’ currently allows for money to be given to relatives without paying any inheritance tax – providing it meets the requirements, including being outside of a 7 year ‘window’ before dying.

This can therefore create an efficient opportunity to help future generations start their adult lives in their own home sooner. The average gap between renting and paying a mortgage is £900 a year – an enormous saving over a lifetime.

For advisers too, there are opportunities

Grandparents need advice to make informed decisions about using their finances to help the people they care about most. Advisers play an important role in navigating these very personal decisions.

Grandparents can see this ‘living inheritance’ put to good use – allowing them to share in the joy of seeing loved ones settle in new homes while also potentially providing intergenerational planning advantages.