BANK OF MUM AND DAD: ARE YOU READY?
With parental handouts fast becoming the only route to
home ownership, mums and dads need to plan ahead to help their
offspring fly the nest.
As a parent, you might think you have enough to worry about
with school fees, healthcare, holidays and all those other
bills that dependents tend to generate. Then there's your
pension provision and retirement plan. You're going to live
longer, so you might have to work longer. You've got to plan
for retirement in old age when healthcare costs will be greater.
So, surely, getting your children safely through school is
all that can be expected. After that, it's up to them. They'll
Or will they? The problem is that today's young are growing
up without the opportunities enjoyed by their parents. In
all likelihood, they will not have access to affordable housing,
defined benefit pensions and free university education.
The reality is that property price rises continue to outstrip
earnings, blocking first time buyers from joining the property
ladder. It would be reasonable to expect your child, as a
first time buyer in London, Johannesburg or Nairobi, to require
a cash stash of say USD 125,000 for a deposit on an entry
level property of say US 250,000.
What is worse is that, in all likelihood, they will require
this sum just as you are thinking of retiring and shortly
after they leave university saddled with debts generated by
tuition and maintenance fees. The cost of going to university
in the UK is now over GBP 9000 per year for tuition fees alone
with comparable or higher annual costs in the US.
So the truth is that as young adults, your children will
need your help to get on in life and as a recent report shows,
as parents, you will want to provide that help.
According to research by Legal & General published last
year, the Bank of Mum and Dad in the UK is now funding more
than a quarter of house purchases, making it equivalent to
the ninth-biggest mortgage lender. In the UK, this year, mums
and dads will lend more than GBP 6.5 billion. Most of this
will go on deposits.
In Africa, the pressure to own property is arguably greater
than in mainland Europe where rental prices are low and renting
is the norm. While in the UK, the Bank of Mum and Dad will
fund over £2.3 billion in rental payments for children
who can't afford to buy, in cities like Nairobi, Cape Town
and Johannesburg things are different. Renting in these cities
is costly and landlords unreliable. So owning a property as
soon as possible is considered the only sensible option.
Wherever you live, your offspring are going to need help.
As with any inevitable cost, there is the opportunity to plan
ahead. By consulting your financial adviser early, you can
avoid leaving your children to fend for themselves against
the odds or, worse, diminishing your estate by releasing equity
from your property to help your children buy theirs. Timely
adjustments to your existing investment strategy could enable
you to give them a helping hand when they need it most.