As if planning finances wasn't already a difficult enough task, for many families these days, parents have to factor in not only their own financial planning but also plans to prop up their children's finances.
This research from Legal & General shows that parents will lend over £6.5 bn to their children to help them buy a property accounting for 26% of all UK property transactions and up by 30% on the previous year.
In recent years, personal financial planning has become more complex with increasing longevity, greater decision making for those with defined contribution pensions, changing pensions and tax legislation and uncertain economic outlooks. Having to also potentially factor in additional amount to support children beyond education and into their first home will add significant pressures for many
The Council of Mortgage Lenders figures show average first-time buyer borrow an average of £132,100. Even if parents only contribute towards the deposit this would mean finding an extra ~ £7,000 for the minimum 5% deposit. However, the L&G research suggests that some parents in effect becoming the source of the capital either as a loan or a gift, so replacing the traditional sources of mortgage.
So how will people manage this additional strain and what will be the effect on their own financial plans? It may be an obvious statement to see the solution as to just save more but this begs th question as to where to make the saving to and it also raises tax and estate planning issues.
As an example, the new LISA can be funded by a parent or grandparent for children/ grandchildren. The maximum saving of £4,000 per year could in itself build up the amount needed for the average deposit in 2 years - when factoring in the 25% government bonus.
Should the capital be given as a loan or a gift? Both have quite different implications in terms of estate planning, tax planning and reporting and ownership of capital.
People already need more guidance in helping to plan for a secure financial future. If you add to that the need for supporting a child's finances then this will need a lot more planning and certainly some professional advice.
Parents '10th biggest mortgage lender' By Kevin Peachey