The Financial Planning Implications of the ‘Bank of Mum and Dad’

Increasingly, there is little prospect of our children leaving home at 18, renting for a few years whilst they save for a deposit on a house and then buying their first home.

How much and in what way we should we help?

Our own resources will be the first consideration. Do we have access to a lump sum to buy them their first home outright? If not, can we give a lump sum and then act as guarantor for a mortgage? Will we need to re-mortgage our own home to be able to raise this kind of cash? Will we need it back when we retire?

Once we’ve thought all of this through, then questions of control arise. Are our 20 something’s ready for the responsibility of owning their own home? Now that they are a potential target for unscrupulous partners, are they going to make the right decisions about marriage? What is their financial decision making like? Are they at risk of personal insolvency? In short, how much do we trust their decision making?

Are we happy to make an outright gift and put them at risk of losing everything if they become bankrupt or get divorced?

Or do we buy the property in our own name, or set up a trust so that we can maintain control and protect them from the consequences of their own decision making?

And then there are the tax considerations and there are many; the most important of which is to make sure they don’t drive your decision making. Before making any decisions of this magnitude, it’s really important to think about the whole picture. If you’ve bought a house for child number one, do you need to revisit your Will to make sure you have made appropriate provision for your other children? Are your Lasting Powers of Attorney (LPA) up to date to reflect the new financial responsibilities you have taken on?

We can help you identify and navigate through all aspects of what can be a bewildering decision making process for the Bank of Mum and Dad.