An increasing number of parents are supporting their adult children, whether able to afford it or not, 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.
As prices are expected to continue to rise, as at 13th August 2022, 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
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 currently 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 five-year fixed rate mortgage was £501 more expensive in September 2022 than two years prior on a 25-year, £250,000 mortgage2&3 – 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.1
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 1998.4
Similarly, overdraft interest rates can often be around 40%5. meaning utilising this feature, however tempting, could be significantly costly and increase pressure on already stretched budgets.
Using equity release as an alternative
Equity release can be a solution for customers, where an adviser agrees it best meets the needs of their client. 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.
In fact, the latest data from Key Group’s Q3 2022 Market Monitor shows that 1 in 5 people who took out equity release in July through September 2022 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.
If expected to offer a desirable outcome for your client, a Standard Life Home Finance lifetime mortgage will require zero monthly repayments. That means, if your client has already been affected by the current economic climate, they needn’t worry about the additional financial pressure of monthly repayments.
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 their plan comes to an end.
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.
To offer your clients the very best solution for a brighter retirement, explore our Defaqto 5 Star rated Horizon lifetime mortgages today.