An increasing number of parents are putting their own financial security at risk to support their adult children as the cost-of-living crisis piles pressure on the Bank of Mum and Dad. More than a third (36%) of parents are already helping their grown-up children with their finances, according to recent research.1 And that’s expected to grow. Over the coming months, as prices continue to rise, a further 15% of parents who don’t currently provide any financial support to their adult children expect to do so due to the cost-of-living crisis.1
However, for those parents who are already in or entering later life, especially those with a fixed retirement income, this added financial strain could cause significant issues. More than a third (39%) of retired households have already stated their monthly expenditure exceeded their income at least sometimes in 2022 – up from 16% in 2021.2 And 67% of those aged 66-75, alongside 79% of those aged 55-65 say they’re not very confident their household will have enough money to support themselves over the next 12 months.1
Where is the focus of the support?
Over the next two years, nearly a third of parents (31%) say they’ll provide financial support for their grandchild’s childcare, while over a fifth (21%) say they’ll cover bills and other household expenses – an average of £870 each.1 Nearly 1 in 10 (8%) say they’ll help with a house deposit, and almost 1 in 20 (4%) will contribute to paying off debts.1
Why is the support needed?
Inflation is at its highest rate for 40 years. Soaring energy, food and fuel costs have added significant financial strain on many UK households, particularly young adult households with typically lower incomes.
Add to that a sharp rise in mortgage and credit card interest rates – where the average two-year fixed rate mortgage was £532 more expensive in September 2022 than two years prior on a 25-year, £250,000 mortgage 3,4 and it’s clear to see why so many are struggling. Of those who are providing financial support to their children, over half (51%) say their grown-up children wouldn’t be able to meet payments or afford these expenses without their help.
How will this support be funded
More than half (55%) of parents who already financially support their adult children, or plan to amid the cost-of-living crisis, admit it’ll be difficult to do so. While 31% say they can’t afford it but will do it anyway.1
That then begs the question, how will parents fund this financial support?
According to research, almost two-thirds (61%) will cut back on their own spending, while 38% will forgo luxuries. Concerningly, though, around 1 in 10 will rely on credit cards (9%) or go into overdrafts (8%) to help their grown-up children.1 While over-relying on credit cards has never been a good thing, with average interest rates rising to 21.88% in September, the borrowing costs are at levels not seen since November 1998.5 That means someone with £1,000 debt repaying the minimum amount would take 18 years and 10 months to clear their balance and would incur £1,459 in interest.5
Similarly, overdraft interest rates can often be around 40%,6 meaning utilising this feature, however tempting, could be significantly costly and increase pressure on already stretched budgets.6
Using equity release as an alternative
One alternative to help boost finances in later life is a lifetime mortgage – the most popular form of equity release. Through a lifetime mortgage, your client could unlock some of their property’s value, tax-free, and use a portion, or all of that money to support their loved ones through the current cost-of-living crisis and beyond.
In fact, the latest data from Key’s Market Monitor shows that 1 in 5 people who took out equity release in July through September this year did so to provide a financial gift. That includes bequeathing an early inheritance, topping up a deposit to help a loved one with a property purchase and helping to repay debts. And with a Standard Life Home Finance lifetime mortgage, there are typically no monthly repayments. That means, if your client has already been affected by the current economic climate, they needn’t worry about adding further financial pressure to their outgoings.
Other benefits include fixed interest rates for life, so your clients are protected against any future market volatility, full home ownership retention, and modern, flexible features, such as partial capital repayments – should your client wish to reduce the total cost of borrowing in the future – and inheritance protection.
All Standard Life Home Finance plans come with inheritance protection as standard. We understand that when making financial decisions, it’s not just the here and now your clients need to consider. It’s also important to think about the future.
That’s why, with all our plans, your clients have the option to ringfence up to 50% of their home’s future value to pass on as an inheritance when they die.
And thanks to our no negative equity guarantee, which again, is included in all our plans, no matter what happens to house prices in the future, your clients will never owe more than their home’s value or pass on any equity release related debt to their loved ones.
Expert advice is crucial
Given the unpredictability of the UK’s financial markets in recent times, and an increase in financial vulnerability, receiving the right advice is paramount for your client.
Air is the next generation, industry-leading later life lending platform which lives and breathes your growth as an adviser. Enabled by technology, knowledge and people, we offer financial professionals, from advisers to lenders, best-in-class digital sourcing tools, personal development services and incentives; all designed to support and reward your business growth, especially through this challenging time.
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For more information, call our expert adviser support team who are on hand help you with your later life lending questions. Get in touch today on: 0800 294 5097
2more2life: Borrowing in later life report