From nappies to new homes The changing role of grandparents

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From nappies to new homes The changing role of grandparents With childcare costs rising, house prices seemingly out of reach for first time buyers and parents under increasing financial pressure – are grandparents playing an increasingly important role in young people’s lives?

In this article, we look at the challenges being faced by parents and grandparents, and the options available to family members who want to offer financial help to loved ones, including releasing equity from their homes.

The childcare ‘gap’ parents in full time employment. The employment rate for mothers has also

More parents than ever are working. In increased to 74%, from 68.9% in 2013.1

April to June 2018, almost three quarters (72.5%) of cohabiting parent families had In addition to this increase in paid work,

both parents in employment; of these the cost of formal childcare is also rising.

families, almost half (45.5%) had both The average cost of 25 nursery hours for

a toddler is now £127 per week – almost as much as the average weekly UK mortgage payments, which are around £157. Only half of local authorities in England have enough childcare to support the needs of parents working full time.

These supply and affordability issues could be why some parents, have turned to friends and family to help them fill the gap. Due to the informal nature of these arrangements, there is very little official data on grandparents stepping in to help with childcare. However, a YouGov poll commissioned by Age UK highlighted that:

• one in 10 look after their grandchildren at least once a day

• a fifth (18%) look after them 4-6 times a week

• two-fifths (38%) look after them 2-3 times a week

More than half surveyed said that their help had enabled their own child/children to work more to support their family.

So with all this additional support being asked for and given by grandparents, is there a broader impact?

Family bonding & potentially increased pressure

The informal nature of the support provided by grandparents has the potential to have both positive and negative impacts.

While nurseries are contracted to provide childcare, regardless of staff holidays or sickness, there often isn’t a backup for when grandparents go on holiday, have appointments or are unwell. Also the additional hidden costs of spending time with the grandchildren – eg. taking them to a soft play centre or on little outings ­can certainly add up and these costs are not always factored in. This could lead to additional stress for both parties, whether it’s through feelings of obligation or guilt from either side.

However, informal care from grandparents goes beyond just a financial solution for struggling parents. The joy of being able to spend more time with grandchildren was one of the benefits highlighted in a 2017 YouGov survey for Age UK with more than half saying that it kept them physically and mentally active and 38% that it gave them a sense of purpose.

1 https://www.ons.gov.uk, 2018

Moving into adulthood

As these children grow up into young adults, they then face the challenge of getting themselves into a more financial secure position and one of the biggest hurdles to overcome is getting onto the property ladder. Increasing house prices and deposits needed have meant that the average age of first-time buyers in the UK has risen by almost a decade since 1997, according to the Office of National Statistics (ONS).

Parents are often first in line for help with deposits, but nearly 1 in 10 first time buyers have asked their grandparents for financial help. Our own research shows that grandparents have contributed £657 million to helping first time buyers in the UK. That’s around 27,200 homes for their grandchildren.

A potential factor for this is that we are living for longer and the average age of inheritance

2 https://www.gov.uk/inheritance-tax/gifts. Accurate 19/03/19.

is now 61. This can mean that inheritance can come at a time when the recipient is secure in a mortgage-free or largely repaid home. The reality is that the money is probably coming quite late for many. The big expenses of raising children and saving for a home are often behind them.

Some grandparents, seeing younger members of the family struggling, feel compelled to help.

How are lifetime mortgages helping?

For grandparents wishing to help, there are a number of possibilities. Money could be taken from savings, drawn out of pension pots or through cashed-in investments such as Premium Bonds. And for some, the homes they live in can offer a solution via a lifetime mortgage. Around 16% of the homeowners that we interviewed had taken this option.

A lifetime mortgage is a loan secured against your client’s home. It is paid back when the final borrower dies or goes into long term care. The recipient may have to pay inheritance tax in the future. The lifetime mortgage market is growing rapidly with many homeowners looking to use the money to help them enjoy a more colourful, fulfilled retirement themselves but also offer a helping hand to family.

For many homeowners, the value of the equity in their property may far outstrip that of any savings or pension pot that they own. Under current legislation, the money is taken tax-free. Providing it meets the requirements including being outside of a 7 year ‘window’ before death, HMRC legislation around ‘gifting’ currently allows for money to be given to relatives without paying any inheritance tax.2

For some, a lifetime mortgage can enable them to enjoy their retirement more fully and offer a way to help their grandchildren purchase their first home. The average gap between renting and paying a mortgage is £900 a year. While mortgage interest rates are at such low levels, getting onto the property ladder sooner can represent a big financial saving.

Grandparents can see this ‘early inheritance’ put to good use – being present to enjoy watching their loved ones settle in new homes while potentially having the opportunity to be tax efficient at the same time. Gill and Jim, a couple who helped their granddaughter Becca said:

Gill:

“Our granddaughter was looking for a house and there was no way they could save the deposit...we thought… well, we’d rather see them happy now than have it when we’re gone and we can’t see it!”

Jim:

“We really wanted our granddaughter to have the chance that we had. It’s a really, really nice feeling to be able to do something, to use the value of your house to help your family.

It was a joy…it was as though a weight was lifted off them [and] then they could suddenly see this was their chance. The hug I got from my granddaughter was well worth it.”

The importance of advice

The topic of grandparents using their assets to help family members often attracts a variety of views. Some believe that each generation must work to get their own leg up in life and that the money they have worked hard for should be used to enjoy retirement, saved for a rainy day or used for their care in later years. Others would rather see their family enjoy the money now, rather than wait until it is less needed. There is no right or wrong answer.

What is clear is that it’s a big decision. More flexibility in the product features mean that the view of equity release

being a choice that leaves nothing for families is shifting. There are opportunities for advisers to have conversations with their clients about intergenerational planning and the role that equity release can play.

For advisers, the changing landscape and the £1.6 trillion of housing wealth held by the over-65s offers opportunities to help people make more informed decisions about how they can use their assets effectively to help the people they care about most. Helping grandparents to navigate these intergenerational planning decisions is also an opportunity to open the door to future generations of clients.

Get in touch: Have a question about lifetime mortgages? We can help.

We’re committed to helping advisers understand the role that lifetime mortgages can play in helping clients achieve their financial objectives and a more colourful retirement. There is lots of information on our ‘Getting Started’ page www.legalandgeneral.com/adviser/getting-started or you can contact one of our team’s specialists.

Wealth Advisers:

Rob Miles, Head of Wealth IFA Sales

07979 534637

rob.miles@landg.com

Mortgage Brokers:

Marie Catch, Head of Mortgage Broker Sales

07738 696121

marie.catch@landg.com

Please do not send personal information. Email is not a secured method of communication.

Legal & General Assurance Society Limited is a wholly owned subsidiary of Legal & General Group plc. Registered in England and Wales number 04896447. Registered office: One Coleman Street, London, EC2R 5AA. Legal & General Home Finance Limited is authorised and regulated by the Financial Conduct Authority. Q0059367. Sub0195278/October19