The sandwich generation: Cash-free ways to help your ageing parents and grown-up children

22 October 2019

Many of us have to balance the needs of elderly parents with ‘kidults’ requiring a helping hand. Find out how to reduce your financial stress

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Are you feeling the financial tug from kids on one side and ageing parents on the other?

If so, you are not alone. About 1.3 million people in the UK have multi-generational caring responsibilities, according to the Office for National Statistics.

Being part of the sandwich generation can impact on your life, both financially and emotionally. If you still have your own mortgage to pay, gifting your children the deposit for their first home or paying for your parents’ care may stretch your finances to the limit.

But there is no need to panic. For many people, the key to reducing financial stress is guiding both sets of relatives to financial independence, rather than simply paying for everything.

How to help your children

Give your kids the tools to prepare for university

Most parents will be expected to make a significant contribution to their children’s university education. But before you hand over your hard-earned cash, make sure you have laid the foundations of good money management.

Rachel Wait, consumer affairs spokesperson at MoneySuperMarket, says: “A good starting point is to help your child add up the income they will receive from a student loan and any job they might have and then write down a list of outgoings and the payment deadlines – such as tuition fees, rent and bills. Once you have worked out the essential outgoings, you will be able to see what is left over for text books, food and spending money. Even working out the cost of a weekly shop can help when budgeting for the first time.”

Leverage your savings to help your children buy a home

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The main financial challenge facing most young people face is how to get on the housing ladder. Saving a sufficient deposit can be difficult, with many affluent parents simply giving their child the money.

If you are not in a position or don’t want to do this, a new wave of guarantor mortgages offers a potential solution. Lenders such as Lloyds, Barclays and Marsden Building Society offer deals where a family member deposits between 10% and 20% of the property purchase price in a linked savings account. The money is held as security for the child’s mortgage for a set number of years, or until the amount they owe falls below a certain percentage of the property’s value.

Alternatively, some lenders will take a charge over the family home as security for the child’s mortgage.

Guarantor and joint mortgages

Consider acting as a mortgage guarantor to help your child buy a home. Being a guarantor means you would have to agree to cover the monthly mortgage repayments of your child’s home if they fail to do so.

Another option is to get a joint mortgage with your child, so the lender would also take your income into account when calculating mortgage affordability. Again, this would make you liable for mortgage payments should your child default.

It could also trigger the 3% stamp duty surcharge for second homes  if you already own a property. A way round this is to opt for a ‘joint borrower, sole proprietor’ mortgage – Furness Building Society, for example, offers this. With this type of loan, your name will be on the mortgage, but not the property deeds.

Encourage your child to open a Lifetime Isa

Even if your child is some way off buying a home, it is worth setting him or her on the path to homeownership with a Lifetime Isa (Lisa).

Sarah Coles, personal finance analyst at Hargreaves Lansdown, says: “You can encourage your offspring to open a Lifetime Isa for their own savings and help them top this up to £4,000 a year. The government will then boost this by £1,000, adding to their deposit without you having to reach even deeper into your pockets.”

Anyone from the age of 18 to 40 can open a Lisa, but the money must be used to buy a home or to fund retirement after the age of 60.

We’re arming our kids with budgeting skills before uni’

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Liz and Alan Taylor, from Kent, have made sure their children Laura, 20, and Matt, 18, have good budgeting skills before leaving home. Laura is in her second year at university, while Matt has just started.

Liz says: “They both had part-time jobs at school and I encouraged them to always save a proportion of their income. We have also saved some money to help them at university, and their grandparents did too.

“Before Laura went to uni, we had a chat about budgeting each term. I also helped her choose a student bank account and warned her against spending on credit cards or payday loans. She seems to be managing her money fine so far. She is moving into a house with friends next year so we’ll speak to her again about getting the best deals on things like broadband and household energy,” she adds.

How to help ageing parents

Help your parents adapt their home

A few changes around the house can help ageing parents stay in their own home for longer. Your local authority may be able to provide specialist equipment, such as grab rails, ramps and outside lights, free of charge. Elderly people needing more significant changes to their home may qualify for a Disabled Facilities Grant (Gov.uk/disabled-facilities-grants).

Providing your parents with smart devices may also help them live independently. For example, if they could control their thermostat from their mobile phone, they would not need to get up to turn up the heating.

 Investigate later life living options

The time may come when your parents cannot live completely independently. Sheltered accommodation or specialised retirement housing, sold solely to people aged over 55 or 60, could be the solution.

Most retirement properties are leasehold and come with extra costs such as ground rent, service charges and payments into a contingency fund. It is a good idea to help your parents research these costs before they go ahead with a purchase.

Another option may be to add a ‘granny annexe’ to your home. This can allow your parents to maintain their independence, while benefiting from extra support. But it is important to take financial and tax advice regarding how an annexe should be funded and owned.

Mrs Coles says: “If you build a self-contained annexe attached to your home for them to move into, there will be extra council tax to pay. They can get a 50% discount in the annexe, but this still needs to be factored into your costs.”

Analyse later life borrowing options

Many older people still owe money on their mortgage after retirement and would benefit from a chat with a mortgage broker.

Aaron Strutt, product and communications manager at Trinity Financial, says: “Many lenders have eased their criteria for older people. There is a selection of lenders with no maximum age limits providing cheap rates for 70 years plus borrowers.”

If your parents are asset rich but cash poor, an equity release scheme would allow them to borrow against their property’s value. It is important both you and your parents understand how equity release schemes work as it will affect how much they will leave as an inheritance.

Understand care home costs

Your parents may need help in their own home or to move into long-term care. They will be means-tested to work out whether they, or the local authority, will pay for care. If they have savings or assets of less than £14,250, they will not pay towards care. If they have savings of between £14,250 and £23,250, they will have to pay a contribution towards their care, while those with assets of more than £23,250 will have to cover the whole bill.

Mrs Coles says: “If they sold their home and gave the proceeds away shortly before moving into a care home, the local authority may decide they did so deliberately to avoid self-funding and insist they pay for care themselves.”

‘We talked about money when my parents decided to downsize’

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Tom Jones, 25, is an account executive from Manchester. He has had a series of financial discussions with his parents, who are in their late 50s, prompted by their decision to downsize.

“This triggered discussions about money, their retirement, wills and inheritance,” says Tom, “They decided to make some gifts while they were still alive including helping me with a house deposit. They are from a generation that is very keen on homeownership and it’s something they wanted to help with.”

Tom’s father is semi-retired and his mother was thinking of retiring, so Tom discussed their retirement plans, and retirement income, with them. His mother had a set amount of money she wanted to have in the bank by the time she retired and planned to work a few more years to achieve this.

Tom says: “We realised that instead of working flat out for so many years she can actually retire a bit earlier and then work part-time – and end up with the same money. I also think this will also ease her into retirement better, rather than her going from working full-time to having nothing to do.”

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