Bank of Mum and Dad Desperately Seeking Advice

17 August 2018

The Bank of Mum and Dad (BOMAD), one of UK’s largest lenders and financers desperately needs financial advice and guidance, according to new research from the UK’s leading independent equity release advisor Key.
 
Its nationwide study* found that over three quarters (76%) of all parents aged 55 and over find gifting rules complicated and are concerned about making mistakes with nearly a quarter (24%) worrying that they don’t have the financial knowledge to make the right financial decisions as the Bank of Mum and Dad.
 
With industry estimates showing that more than one in four housing transactions in the UK are financed by BOMAD, Key’s research indicated that the over 55s are looking for additional help and guidance in this area. In fact, two-fifths (40%) of parents aged over 55 believe there needs to be more support to help the Bank of Mum and Dad by offering online guidance.  In addition, 78% of the over 55s would welcome tax incentives for gifting to children providing the money is used for major life events, such as a first property purchase, university fees or to clear debt.
 
Younger Generations Concern about BOMAD
Concerns around how financially savvy older parents’ are is raised as an issue by the younger ‘generation rent’ too. Nearly half (46%) of those 18-40 year olds living in rented accommodation** worry that their parents potentially don’t have sufficient financial knowledge to make the right decisions as Bank of Mum and Dad, and are concerned about a lack of support to help their parents’ get it right. Indeed, over three-quarters (76%) of those in rented accommodation want more done to assist the Bank of Mum and Dad with specific online information and guidance.
 
The demand for advice is clear, Key’s research also shows over a quarter (26%) of parents over 55 want to seek financial advice on how to make financial gifts and that 46% want to seek legal advice but are worried it will be expensive.
 
Dean Mirfin, Chief Product Officer at Key said: “Collectively BOMAD is a major UK financial institution but one that needs advice and guidance so that parents feel empowered to make the right financial decisions for themselves and for the next generations.
 
“Older homeowners in the UK own as much as £1 trillion in housing wealth according to our estimates and are also likely to have generated significant pension wealth as well as other retirement savings.  The challenge for parents wishing to lend or gift money is to decide which assets are the most appropriate and most tax-efficient for gifting. We believe advice is key.
 
“The over 55s are right to demand increased guidance and support and it’s no surprise that the vast majority would support tax incentives providing the money is used for major life events, such as a first property purchase, university fees or debt repayment. At Key, we would support any initiatives which give clearer guidance to the Bank of Mum and Dad about the important intergenerational financial decisions”
 
Key’s Dean Mirfin has developed some top tips for parents considering loaning or gifting to their children and grandchildren:
 

• First of all, it’s good to talk. Money can be a taboo subject. Don’t let it be. Talk about exactly what you can afford and what is fair. Make sure it is clear from the beginning whether the money you are giving is a gift or a loan.  It can be confusing and could lead to an embarrassing conversation if this is unclear from the start.

• Seek professional advice. Independent financial advice and also legal advice will give you the peace of mind that you are making the right decisions.

• It’s also important for the recipient to be open about who the money will benefit, i.e spouses. We all know how complicated families can be so it’s important to be transparent from the beginning about who exactly will be receiving and benefitting from the money, particularly if it is going towards a joint house purchase.

• If you are giving all or part of the money on a loaned basis, it is worth drawing up a contract outlining repayment terms.  No matter how lenient or relaxed you may initially be about receiving the money back, circumstances can change and its useful to have the agreement in writing.

• Don’t be afraid to say if you are intending for the money to be spent on something in particular such as helping towards a property purchase. If you are giving the money to help towards a house deposit, consider helping the recipient put it into a Help to Buy ISA or releasing the money only when they’ve found the house they want to buy. 

• Be aware of tax implications. You can gift any amount of money you like to your children without being taxed immediately or potentially at all, however if you pass away within 7 years of the transaction there could be tax implications. 

• Many older people have developed wealth from property, pension assets and other retirement savings including ISAs. It’s important, if you are considering a loan or gift to consider which assets are best to access and this is where advice is vital.   

• Finally, think carefully about whether it is financially viable for you to gift money to family members.  It’s vital to carefully consider your own financial future before thinking about gifting or loaning money.  Your retirement income, potential cost of care and house refurbishments are the sorts of things to factor in to your decision.  If you are unsure, seek the advice of a professional adviser.