Supporting Grandchildren Financially
An increasing number of grandparents are stepping in to support their grandchildren financially, due to the escalating cost-of-living crisis. As parents face an unprecedented level of pressure to pay for energy and other household bills, large spends are being affected.
Whether it’s financial support for school or university fees, a child’s first car or a house deposit, many grandparents from the “baby boomer” generation are stepping in to assist. But there are different ways to support a young person or couple financially without digging into your hard-earned savings.
Helping with school or university fees
A private education is increasingly becoming a less affordable option for families previously considered fairly affluent. The average cost per term of a private school is nearly £5,000 per term (day attendance only, not boarding). At university level, tuition fees currently average £9,250, although young people can apply for a student loan. Combined with a high cost of living, however, this leaves a young person with a very large debt at the end of their studies.
If you are a grandparent in a fortunate position to help a grandchild with school fees, then you could consider gifting the money. This is a tax-efficient way to support them with their education costs and could help to reduce future inheritance tax liabilities (IHT). As a grandparent, you can gift up to £3,000 per tax year without this adding to your estate value.
Helping your grandchild buy their first car
Owning your first car is a rite of passage that many of us look forward to when we’re teenagers. But due to the rising cost of living, this is becoming less of a reality for many youngsters. It is increasingly being left to grandparents to either sub or pay for vehicle costs. According to AutoTrader, the average cost of a second-hand car in the UK is a staggering £17,000, which is up by £3,000 since the previous year.
One option for young people is to take out a Hire Purchase (HP) agreement to pay for their car. HP is a type of loan and ideally requires someone to be financially savvy, fully understanding the long-term costs and having the ability to make the monthly repayments. The big risk here is when a young person fails to understand this financial burden, leading to parents or grandparents having to step in and cover their repayments.
Helping a young couple buy their first property
Buying your first home is most people’s dream but the reality of purchasing a property for many young people in the UK seems to be getting further away.
Here are some worrying stats:
- £63,803 – average total debt per household including mortgages
- 26 years – average time to save for a first-time buyer house deposit.
- 10.1% – average increase of a first-time buyer house price (February 22).
(Source: The Money Charity)
These astounding figures only go to show just how hard it can be for a young person or couple to get into the housing ladder. It is because of stats like these that an increasing number of grandparents are stepping in to support their grandchildren’s property purchases. How can you access a large enough sum to support your grandchild with a house deposit?
Equity release for cash funding
If you are a grandparent with positive equity in your home, one way to support your grandchildren could be through equity release. By releasing equity from your property, you might be able to unlock enough cash to provide financial support to your family. Usually, if your home is worth more than you originally paid for it, this results in some positive equity.
Equity release is a type of long-term loan also known as a Lifetime Mortgage, and this option is available to those aged 55 or over. The loan only gets repaid either once you have passed away or if your home has to be sold due to you going into long-term care. Always talk to an authorised, trusted mortgage broker if you need advice on equity release.
If you are an IFA or an accountant with a client who is trying to find a way to support their family without dipping into their savings, then please get in touch. We will be able to answer any questions you may have so you can offer your client a safe and practical solution.
If you need to access funding to help a grandchild or another family member, talk to our friendly team for advice. Call 01455 238 650 or send us an enquiry.