Grand idea to help out but always put yourself first
GRANDPARENTS are rushing to help younger relatives survive the Covid-19 recession by giving them financial support.yet experts warn they must avoid putting their own futures at risk in the process.
The Bank of Grandma and Grandad has become increasingly active in recent years, helping the younger generation fund university tuition fees or climb on to the property ladder.
Half of all grandparents have stepped in to support grandchildren during the pandemic, a big-hearted gesture given that many are also concerned about their own retirement income.
A third have handed over cash, according to research from Killik & Co, while others have helped with rent and mortgage payments.
Some have even started selling items on ebay or finding part-time work to help out.
Many are assisting despite being worried about the value of their pension and Isa savings after the stock market crash.
Killik’s head of wealth planning Svenja Keller said you should not prioritise your family’s financial stability over your own: “If you are a grandparent, secure your lifestyle and long-term cash flow first, before providing sustainable support to the younger generation.”
SPRINGBOARD
One of the most common uses of the Bank of Grandma and Grandad
(or Bank of Mum and Dad) is to help younger family members get on the property ladder.
Chancellor Rishi Sunak’s decision to waive stamp duty on property purchases up to £500,000 has injected new urgency, as buyers can save up to £15,000 if they complete before March 31, 2021.
The big challenge is that young buyers need a deposit of at least 10 or 15 per cent, as mortgage lenders have become more cautious about higher loan-to-value (LTV) lending during the crisis.
Older family members can help by handing over a cash sum towards the deposit with no strings attached, and that is great if you have the money.
If you do not, there is another way to help out while retaining control of your savings and even generating more interest on them.
Eleanor Williams, finance expert at Moneyfacts, said the Barclays Family Springboard mortgage offers first-time buyers a home loan of up to 95 per cent of their property’s value, allowing them to buy with a deposit of just five per cent.
To qualify, a family member must also put 10 per cent of the purchase price into a special Barclays account called Helpful Start, for five years.
This money acts as security on the purchase, effectively upping the total deposit to 15 per cent. “If mortgage repayments are met, you will receive your money back, with interest, after five years,”williams said.
Better still, Helpful Start pays
1.50 per cent over base rate, which means you currently get an inflationbusting return of 1.60 per cent a year.
The mortgage is competitive, fixed at 2.85 per cent over five years. “Overall, both the home buyer and the Bank of Mum and Dad could come out of this better off,”williams said.
FAMILY SUPPORT
If you do not have that much cash to hand you may still be able to help out, with a mortgage product from Saffron Building Society.
This offers first-time buyers a 95 per cent mortgage, provided a family member puts their income towards any shortfall, but without having their name on the title deeds.
Other deals allow you to act as a guarantor for mortgage repayments. Tread carefully though, as you may be liable for any shortfall, with your own property acting as security.
Again, you need to look after your own interests.williams said: “Talk to a mortgage broker to navigate the various products and make the right decision for everyone.”
Growing numbers of pensioners help out by unlocking cash from their own property using an equity release scheme.
Older homeowners released some
£1.47 billion worth of property wealth in the first half of this year, according to adviser Key Group, of whom one in five gifted some of their windfall to family members.again, do not overdo the generosity, and make sure you have enough money left for later life.
‘Overall, both the home buyer and the Bank of Mum and Dad could come out of this better off’
THINK TWICE
Some grandparents consider a far more dramatic step, by transferring their entire property to children or grandchildren, to reduce a likely inheritance tax bill when they die.
Lawyers warn this may be taking generosity too far, as you run the risk of being forced out of your home.
Jan Atkinson, head of wills, probate and estate administration at Osbornes Law, said there are strict guidelines in place to prevent people avoiding tax in this way. “If you continue living in your home, it is likely your children will still face a tax bill,” she said.
Worse, if your children or grandchildren divorce or are forced to file for bankruptcy, they may have to sell your home to cover the bills.
“Even if the financial savings look appealing, it may not be worth jeopardising the peace of mind associated with owning your own home,” Atkinson added.