Your clients helping their grandchildren
Are your clients helping a grandchild onto the property ladder?
They're not alone
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?
See our sales aid below to find out more.
The changing role of grandparents PDF size: 2.3MB
Hear why Jim and Gill decided to use a lifetime mortgage to provide their granddaughter Becca with a deposit for her first home:
Transcript: Gill and Jim's story
Running time: 2.55 mins
Gill: My name’s Gill.
Jim: I’m Jim.
Gill and I have been married fifty odd years, fifty-two…
Jim: Fifty-two years in March.
Gill: In a couple of weeks yeah.
Jim: Always lived round here ain’t we and our families grown up with us.
The reason that we wanted to get the lifetime mortgage.
Was to help a member of our family which our granddaughter and put their foot on the ladder as they say.
Gill: Our granddaughter was you know looking for a house and no way could they save the deposit.
Which that’s the reason we did it for her.
Jim: We really wanted the granddaughter to have the chance that we had it’s a really, really nice feeling to be able to do something…
And your using the value of your house, to help your family and that’s what it’s all about.
On screen text: A lifetime mortgage will reduce an inheritance. If you give the money away, the recipient may have to pay inheritance tax in the future.
Jim: With regards to concerns with a lifetime mortgage, we never had it, did we?
We did ask a few questions obviously because it’s something that you really want to know that you’re doing the right thing.
Well the advisers were excellent weren’t they really.
We knew the questions we wanted to ask and they had the answers to put us right to put us at ease.
When we talked to our daughter about it , which we felt you had to do.
She was all for it straight away. There was, there was no hesitation at all.
The granddaughter, it was joy wasn’t it.
It was just as though a weight was lifted off of them you know and then they could suddenly see this was their chance.
Gill: She did say to us first of all are you sure you don’t want it or want some of it
You know but we thought well we’d rather see them happy now.
Then have it when we’re gone and we can’t see it.
The hug I got from my granddaughter was well worth it.
On screen text: A lifetime mortgage, a loan secured against your home, lets you take money from the value of your home without having to move.
Before you can take out a lifetime mortgage, you’ll need to speak to an adviser to discuss your options and the implications for you.
For example, we charge interest on the loan plus any interest already owing.
This means the amount owed grows quickly, leaving you with less equity in your property and reducing any inheritance.
It could also affect any state benefits you receive.
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.
Bank of Mum and Dad report PDF size: 953KB
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.