Over the last few years, house prices have continued to rise much faster than income and the bank of Mum and Dad remains one of the UK’s top property lenders. According to analysis by property firm Savills, the bank of Mum and Dad paid out almost £8.8 billion in gifts and loans during 2022. An estimated 170,000 first-time buyers had family help in getting a mortgage, which amounted to almost half of all mortgaged first-time buyers. With increasing interest rates, stricter mortgage criteria and a cost of living crisis, it’s expected this number will jump to 61% in 2023. The desire to help your children onto the property ladder is strong, but could this support leave you with longer term and unforeseen ramifications?
The long-term impact will depend on how you choose to fund the gift or loan. While the use of cash savings or withdrawing money from your investments or pensions are all possibilities, they have the potential to cause problems for your future financial and retirement plans, not least because we are all living longer and annuities are no longer the automatic choice.
Taking money from your investment portfolio means you run the risk of losing out on any growth and the compounding benefits that investments typically carry, as well as any future benefits from bond coupons or equity dividend payments. The potential rates of return on investments are generally higher than the return on cash over the longer term, but it is always worth remembering that markets can go down as well as up and you may not get back the original amount invested.
Meanwhile, accessing your private pension pot may mean you don’t achieve all your retirement goals. The money taken out of your pension will not be there to grow and compound but, perhaps more importantly, if you access your pension, your annual allowance – the amount you can pay in while enjoying the government’s tax incentives – has reduced from up to £60,000 a year to just £10,000. This lower tax support may mean you need to defer your retirement date.
The good news is that there is another possibility. If you have investable assets over £1 million, you can access the bespoke lending options available through private banks. Not only can loans be secured against your property or investment holdings, but the support you receive will ensure you understand the full implications of any decision and the impact it will have on your long-term financial goals. As a result, you can retain your capital and continue to benefit from your wealth while helping your loved ones with their more immediate needs.
As private banks operate on a more personal case-by-case basis, they can offer a more flexible approach for larger loan amounts, usually over £250,000. The benefits include:
A win for you and your family – in the short term and the longer term.
We publish quarterly updates as to what’s happening in the UK property market. Just sign up with your email address to receive the information and invites in your inbox.
Clients can borrow against a UK, Isle of Man or Channel Island-based residence, be it a home or an investment property. We also lend against investment portfolios and loans can be denominated in Sterling, Euros or US Dollars. With clients in 160 countries, we often help clients based outside the UK, and have lent using the same approach across market cycles since 1987.
To find out more about Nedbank Private Wealth’s bespoke lending services, please visit our ‘Borrowing’ page or email credit.enquiries@nedbankprivatewealth.com. You can also contact your private banker directly or call our client services team on +44 (0)1624 645000. Or you can get in touch using the links to the forms towards the end of this page.
If you fail to keep up loan repayments, your assets used to secure the loan may be at risk and/or your home may be repossessed. Any examples are for illustrative purposes only. The webinars and Q&A do not constitute an invitation or inducement to buy any financial product or service. None of the content constitutes advice or a personal recommendation. Individuals should seek professional advice, based on their jurisdiction and personal circumstances, before making any financial decision.
Andrew heads up the Isle of Man private banking team. He joined the bank in 2005 and has over 30 years’ banking experience. He looks after a portfolio of domestic and internationally-based clients, working closely with them, and their professional advisers, to meet their wealth management, succession planning, pension and lending needs.
Andrew is a Chartered Wealth Manager and a Fellow of the Chartered Institute for Securities & Investment.
Andrew heads up the Isle of Man private banking team. He joined the bank in 2005 and has over 30 years’ banking experience. He looks after a portfolio of domestic and internationally-based clients, working closely with them, and their professional advisers, to meet their wealth management, succession planning, pension and lending needs.
Andrew is a Chartered Wealth Manager and a Fellow of the Chartered Institute for Securities & Investment.
+44 (0)1624 645096
2018 saw parents in the top 10 UK property financiers, but does their support mean longer term and unforeseen ramifications?
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