Life’s getting more and more expensive. Even if you’re financially secure, that can be hard to deal with. You might have paid off your mortgage, built up a nice big pension pot or have a good, solid savings account. But the bills are still getting higher and the weekly shop still costs more and more.
Now imagine that you’re just starting out.
When you’re spending so much on the basics, it’s a challenge to save for the long term. Scraping together enough for big expenses like buying a house or getting married can seem impossible. And a sudden shock, like ill health or redundancy, can be even harder to deal with. That’s where the Bank of Mum and Dad, or BoMaD, comes in.
But not everyone knows what it is. So we’re sharing our Bank of Mum and Dad definition. And we’ll show you how you could help younger family members by opening your own branch of it.
What is the Bank of Mum and Dad?
BoMaD is when parents or even grandparents help younger family members with life-changing purchases or expenses. In 2020, the average BoMaD gift or loan was almost £20,000. And a lot of families are opening their own BoMaD branches.
Our latest figures show that, in 2021:
- About five and a half million parents helped younger family members
- Total BoMaD gifts reached about £9.8 billion
- More than half of under-35s received a gift or loan from their parents.
People fund this in different ways.
Some are lucky enough to be able to draw directly on savings or investments. If you don’t have that choice but are over 55 and a homeowner, you might be able to release money from your home through a lifetime mortgage.
A lifetime mortgage is a type of equity release. It’s a loan secured against your home that you don’t need to repay until you die or move into long term care. Of course, depending on your circumstances you might have other, cheaper borrowing options. If you do choose to take out a lifetime mortgage, it can impact any means-tested benefits you receive. So there’s plenty to think about, whichever route you take.
However you fund it, if you open up your own BoMaD branch you’ll be able to help younger family members achieve big ambitions or bounce back from unexpected shocks. They won’t have to wait years for the money – it’ll be there right when they need it. And you’ll get to watch it help them, instead of just leaving them a nice surprise in your will.
Speaking of wills, gifting money can also help with your inheritance planning – although it may impact how much inheritance tax they pay in the future. Exactly how it helps will depend on how long you live for after you’ve gifted the money.
The Bank of Mum and Dad’s mortgage offer
On average, first-time buyers are aged 35 in London and 33 in the rest of the country. So maybe there’s a 30-something in your family who’s soon going to need a little help. While they might not be able to get a full Bank of Mum and Dad mortgage, a BoMaD-funded deposit can make a big difference.
In the year to January 2022, UK house prices went up by 9.6%. And many lenders now need a 20% deposit, with those asking for less offering more expensive deals. Help with a deposit can give a first-time buyer the boost they need to snap up the right property and pay less to live in it.
A cheaper mortgage deal has obvious short-term financial benefits. Buying a home also has a big long-term impact. At today’s mortgage rates, owning rather than renting can deliver a financial advantage of £326,000 over thirty years.
First, have a chat with any younger family members. See which of their big plans or grand ambitions might need a little support. Let them lead the conversation – you’re there to help them achieve their goals. You might already know what they need but sometimes they might surprise you.
When you know where they’re headed, you can work out how much it might cost to get there and if you’d like to cover some or all of that cost.
Perhaps you’ve got all the money they need saved up already. If so, congratulations!
If not, it might be worth thinking about other choices. As we said above, some parents or grandparents raise money through equity release. If that’s a possibility for you, we’d recommend:
- Taking a look at our:
- Using our Equity Release Calculator to see how much you could borrow.
If you decide to take things further, you’ll need to speak to a qualified financial adviser. They’ll help you see if equity release is right for you and check that there aren’t other, cheaper ways of borrowing the BoMaD money you need.
And you do need to make sure you only pass on money you can afford to share. It’s always good to help your family, but you need to make sure you’ve taken care of your own retirement needs too.