A recent iNews report confirms that the Bank of Mum and Dad typically lends around £6 billion a year, often to help their children get onto the property ladder. This huge amount makes the Bank of Mum and Dad one of the UK’s top-ten mortgage lenders.

Savills put their estimate even higher. MoneyAge confirms that the property group expect parental gifts to top £25 billion over the next three years, supporting almost half of all first-time buyer transactions.

As the cost of living crisis bites though, is this level of borrowing sustainable, or even advisable?

Keep reading to find out.

The cost of living is causing financial hardship for millions

The conservative think tank The Legatum Institute, as reported by the Guardian, estimates that more than 1 million people will fall into relative poverty this winter, compared with pre-pandemic rates. This figure assumes the energy price cap is held at its summer rate of £1,971.

As poverty looks set to reach a 20-year high, 19 million Brits admit to struggling financially in the current climate. An estimated 4 million people are turning to family and friends for support.

A recent LV= Wealth and Wellbeing monitor found that: 

• 26% (amounting to 8 million people) have less than £1,000 in savings, rising to 33% of women
• 57% (30 million UK adults) worry about being able to afford their daily living expenses
• 39% (21 million) are worried about managing credit card and loan debt.

If you have loved ones that you’d like to help through the current crisis, you must do so in a way that is affordable for you.

Latest Office for National Statistics (ONS) figures confirm that inflation dropped slightly for the 12 months to August, to 9.9% from a 40-year high of 10.1% in July. The Bank of England (BoE), though, still forecast a peak exceeding 13% with a return to its 2% target not expected until 2024.

A prolonged crisis could make a huge difference to the amount of support required.

Nearly half of those currently giving support are looking to cut or cease it as costs soar

As millions of Brits turn to friends and family for financial support, reports suggest that the Bank of Mum and Dad could be about to run dry. 

Almost half (48%) of those currently providing financial support will struggle to continue doing so over the next 12 months. For this reason, those support providers are looking at decreasing or entirely ceasing to offer financial help.

At Expert Wealth, we can help you decide if you can afford to maintain support while your loved ones need it most.

If you can afford it, there are several factors you’ll need to consider.

How to open the Bank of Mum and Dad during the cost of living crisis

1. Be sure to ask the right questions

Communication is key where money matters are concerned. Both parties need to be clear on what is being asked for or provided, and that means asking the right questions. 

You’ll need to be clear on: 

• How much you can afford to give without damaging your own plans
• Whether the amount is a gift or a loan, and if a loan, what the terms are
• How to factor in a potential change to your child’s relationship status.

FTAdviser recently reported on an upsurge in requests for “prenups” before the Bank of Mum and Dad is opened. 

Being clear from the outset on the terms of a loan or understanding what happens to your share in a property if a relationship fails could save undue cost and heartache later on.

2. Become the Bank of Grandma and Grandad

You might consider supporting your adult children by opening the Bank of Grandma and Grandad. The numbers doing so have increased over recent years.

In 2022, a quarter (25%) of grandparents say they have already helped, or are going to help, grandchildren onto the property ladder. 

Not only are more grandparents taking up this option, but the amounts are also growing. Typical support is currently more than £31,000, 25% higher than six years ago.

Helping out your grandchildren might take the pressure off adult children, allowing them to budget their way through the crisis.

3. Consider giving a living legacy

If you plan to give an inheritance upon death, the current cost of living crisis might highlight the benefits of a living legacy. Read ‘3 important reasons why you might opt for giving while living’ and be sure to get in touch if you think it might be a good option for you.

You could lower your Inheritance Tax liability and pass on your wealth at a time when your beneficiaries need it most. Best of all, you’ll still be around to see the joy your hard-earned money brings.

Get in touch

As the cost of living crisis continues, you might be called upon to support your loved ones. With decades of experience, our Chartered Financial Planners have the expertise to help you support your family in a way that is right for you. 

We can help you financially support those that need it while keeping your own long-term financial plans on track. If you have any questions, please get in touch and speak to us today.

Please note

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.