Nice advert – but what happens to Mum and Dad’s equity?
Last week Legal & General ran a press release that suggested that rather than the Bank of Mum and Dad bailing out children from their pensions, parents should consider releasing equity from their homes by using LifeTime mortgages. You can see I was a little quizzical from the title of my blog. As I said on the BBC, banks don’t give money away, they lend it.
Bank of Mum and Dad now a top 10 mortgage lender?
This weekend, The Times picks up the story and looks at what happens when what started up as a leg-up , ends up as a knee in the groin – at least as far as parents are concerned.
Just for you, Mr Pooter https://t.co/Q09MUJLlPu @doan1935
— Annie Shaw (@CashQuestions) August 31, 2019
It happens
Annie’s comments are well made. I spent a Sunday in August talking with one of the guests on Lady Lucy who was eastern European and had come to the UK to work in the NHS 20 years ago. She had left her husband and brought her young son with her.
She was keen her son had a house and decided to save like FIRE from her wages. She opted out of the NHS pension scheme and managed to buy a property where she and her son lived. She put the property in her son’s name and the son fell in love. He married a lady who did not like living with her mother in law, especially when children arrived.
Now the son, who works in the City has turfed the mother out and is selling the house. The mother is resigned to getting nothing back, she gave unconditionally and now faces an uncertain future on a nurse’s wage – with little prospect of a pension and with little security of tenancy.
I wished I could have offered her these wise words from Iona Bain;
Young Money Blogger and financial guru, Iona Bain, talks #MWord https://t.co/LYgQRnLtXZ
— Lloyds Bank (@AskLloydsBank) August 27, 2019
Of course there are safeguards.
If parents want to behave like banks they should agree safeguards to ensure that they can get their money back. It’s not what Iona and I were discussing but it is one way of doing things.
Remember the aircraft oxygen mask rule: Always secure your own mask before going to the aid of others, even children
— Annie Shaw (@CashQuestions) August 31, 2019
Annie has sensible suggestions
worse, you give them your retirement money, they divorce and the departing spouse walks off with your hard-earned. Cos if you didn’t draw up a loan deed and declare loan to the mortgage lender it must have been a gift, right? or that’s what the departing spouse is going to say.
— Annie Shaw (@CashQuestions) August 31, 2019
The trouble is we grossly overestimate the power of our houses to sort out our problems and underestimate the cost of looking after ourselves in later lives.
The greatest safeguard you have is to stay close to your children, but even if they show unconditional love – parents are having to compete with the harsh realities facing young families and the even harsher truths of human behaviour.
So what of giving to your children.
Annie is right, parents should only give what they don’t want back. But if you give unconditionally, you cannot give thoughtlessly and you can’t rely on your children to show the genorosity to you, you showed to them.
The Times article talks of the costs of securing a legally binding agreement with your child(ren). A declaration or deed of trust costs between £1500 and £10,000 and that’s the price you pay not to get into later life litigation. Remember that son or daughter in law may not remain so for ever, the most vexatious disputes are between parents and those who came and went from the family.
And of course as soon as you involve lawyers, you get into destructive debates about tax.
No mention in the article tho that the lack of legal docs is often cos parents “want it both ways”. They want the money back but they don’t want to to document it as a loan because they want to tell the mortgage lender it’s a gift, likewise if they die before repayment avoid IHT.
— Annie Shaw (@CashQuestions) August 31, 2019
And we could go a very long way down that path before finding it is a cul-de-sac.
The simple solution was worked out some time ago and articulated by Polonius in Hamlet. When it comes to retirement
“Neither a borrower or a lender be”
I’ll leave the last word, not to that old bore Polonius but to Annie Shaw
and what’s “discomfited” anyway? Equity release on your four bedroom home in a Midlands town is going to stuff your chance of moving to a sheltered one-bed flat in London commuter belt to be near your working kids once you are widowed
— Annie Shaw (@CashQuestions) August 27, 2019
The debate on giving the money we borrow to help our kids borrow more, has a long-way to run.
