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Knock-on effect of the Bank of Mum and Dad

ended 18. October 2022

New research today found that six in 10 parents who have handed over large lump sums to adult children did not factor in whether they will be able to afford to cover care costs in later life. Are you seeing this? It's often a parent's natural instinct to help their kids at their own expense, but could it cost them dearly in retirement? Is the Bank of Mum and dad that's stumping up for house deposits going to bankrupt mum and dad in retirement and leave them vulnerable?

6 responses from the Newspage community

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David Robinson
Co-Founder at Wildcat Law
The sandwich generation are already feeling the cost of living crisis and it's only set to get worse for them. They're being squeezed at both ends. They are already supporting their own parents in care, where they are seeing rapidly spiralling costs as well as their own household bills going through the roof. This leaves them especially exposed as the bank of Mum and Dad, often lending money that would have gone towards their own retirement, or even worse borrowing money that is now resulting in ever increasing interest repayments. Those using their pension pots currently for income, and to support children, will be experiencing pound cost ravaging, which is caused by withdrawing money when investments have fallen. That leaves less invested to grow when markets recover meaning that many parents will see their retirement planning in tatters by the end of the current crisis. This sandwich is in danger of being left with no filling.
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Sam Alsop-Hall
Chief Strategy Officer at Clive Henry Group
Health and social care systems across the UK are bursting at the seams with people in need of, but unable to fund, their care. Complex funding arrangements between the NHS and Local Authorities often leave gaps that need to be met by the individual and it seems many have been blind to this until the time comes, often having exhausted their pensions and stripped their assets for their children and grandchildren. It’s then whether the gamble of setting your kids up has worked and they are able to fund and support you in turn, which doesn’t always work out.
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Aaron Strutt
Product and Communications Director at Trinity Financial
Parents have been handing over huge amounts of cash to their kids and it has been reported the Bank of Mum and Dad may even be a top ten mortgage lender. Clearly they want to help their children get on the property ladder but ultimately many of them will need their money back at one point. Parents sign gifted deposit forms to say they do not expect their deposit contribution back but many of them are passing over their life savings, which they planned to help support them in later life.
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Adrian Kidd
Chartered Wealth Manager at EQ Financial Planning
This is where a financial life planner is essential. This mistake shouldn't happen as you'd be sharing with your clients a lifetime cash flow report to show the effects of giving money to children and adding costs for care into the plan. This is super informative and can shape money decisions as you get a feel for the impact of what you are planning to do whilst planning for the unknown, too. If your financial adviser isn't doing this already then find one who does. Yes, it's natural to want to help your kids throughout life but I would argue that it shouldn't be to your own detriment. Remember what they tell you on the plane: attend to your own face mask first when pressure is lost and then your children. The same applies here.
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Mark Robinson
Managing Director at Albion Forest Mortgages
The Bank of Mum and Dad has been funding a lot of children's deposits for a while now. Some parents even going so far as to hop on the mortgage with a Joint borrower sole proprietor mortgage to help their children afford a place at all. We may end up seeing more and more parents turning to equity release products in order to look after themselves in retirement, potentially watering down the inheritance that those same children would have received down the line.
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Ricky Dosanjh
Director at Reeds Financial
Bank of Mum & Dad is one of the Top10 lenders in the UK. Any parent will do what they can to support their child and it's very prominent in the property world. You have parents gifting large sums to support deposits, or even going on to applications. Are we going to see these parents in financial difficulty; maybe. But you would assume they have had financial advice before doing anything like this. We've also seen parents sell properties to move into home with their children. Multi generation homes for many will be the new norm.