"I want to see my son settled,” Mike reasoned. “I’ve earned all my life. The least I can do is help him buy his first house.”

Mike’s son can’t afford to leave home, so his decision to help him get a mortgage seems very noble.

Maybe you can relate.bank of mum and dad

But… is Mike doing the right thing?

When it comes to helping your children get on the property ladder, you must answer some important questions before giving your money away.

Because what you decide today could have a serious effect on your own retirement tomorrow…

Of course you don’t want to see your children struggle with money.

My own children are teenagers, but I have plenty of friends with children in their late 20s and 30s.

They tell me it’s hard to see them with full-time jobs but still unable to save up enough for a deposit – especially because when we were their age, we were often already home-owners.

Some of the “children” – really adults! - still live with their parents and can’t afford to move because property prices are so high.

It’s not ideal – by this stage everyone needs their independence.

Renting feels like lining someone else’s pockets with cash.

Is it any surprise that a growing number of parents are aiming to give their kids a leg-up on the property ladder?

In fact, the “Bank of Mum and Dad” is now the 11th largest mortgage lender in the country, according to a recent study by life insurer Legal & General.

Parents are set to shell out over £6 billion this year helping their kids buy properties!

Here’s the problem.

Before you decide how much money to give your kids, you must think carefully about whether you really can afford to help – not just now, but over the next five or 10 years, and beyond.

Because what most of the newspaper reports about the “Bank of Mum and Dad” played down was the startling warning that a quarter of parents polled were not confident that they had enough money to last through their retirement...retail-house

…And yet they still helped their children out with their house purchase.

In fact, the poll of 1,600 people showed that 15% had already seen their own standard of living suffer, because they had helped out their children.

And I couldn’t help but notice a different report, showing that the cases of parents suing their kids to get back the money they put back into their houses has trebled.

Imagine the impact on family relations. That cannot be what the parents originally intended….

Of course, all this doesn’t mean you shouldn’t help your children…

But it does mean that you have to be extremely careful not only about how much you give, but where you are going to take the money from – and on what terms.

When you start looking into all your options, it’s enough to make you dizzy.

You can choose to take equity from your home, gift or loan the money, dip into your pension pot or savings, become a guarantor on the mortgage…

Each of these options has consequences that affect both you and your children.

Just to give you one small example, if you choose to gift the money, you must decide on the amount carefully.

retail-piggybankAbove a certain threshold, your children might be liable to pay inheritance tax on the sum later down the line.

Or if you draw the money from your pension pot, you are taking money that would have been completely exempt from inheritance tax when you pass away – so there are tax implications here too.

And that’s before you consider just how much you are going to give, and how much you will have left to live on, once you’ve stopped working.

These decisions are complicated – and delicate.

You have to protect both parties – so it pays to get advice from someone qualified to give it.

A good financial planner can help you think through all the issues…

…and make the best decisions for the entire family long-term.   

That’s exactly where our team of mortgage and financial planners can help you.

Get in touch with us today for professional, objective financial advice, tailored to your needs and to your circumstances. 

contact us

Let’s work out how to help your kids get on the property ladder – without sacrificing your own retirement, or getting yourself into unexpected financial trouble.

Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.

Posted by Peter Selby

Topics: financial planning, Mortgages


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