Tips for how to unlock wealth to help cover family expenses.
Are you a high-net-worth (HNW) individual looking to provide financial support to your family? Many HNWs find themselves in this position, eager to help their loved ones achieve their goals. However, navigating the complexities of wealth transfer and estate planning can be daunting. In this article, we’ll explore effective strategies to unlock your wealth and support your family’s financial needs.
The Growing Trend of Family Financial Support
The infamous ‘Bank of mum and dad’ is alive and well with a recent report finding that 70 per cent of high net worth (HNW) individuals are providing financial support to their children. But increasingly this type of support is also bridging the generations, with 80 per cent of HNWs saying they are helping adult grandchildren.
According to the Salter Wealth Index Report, these funds are mostly being used to help with mortgage payments, other household bills including food, and higher education fees. So, what are the next steps for HNWs who would like to support family members in this way? Essentially, there are three main options available.
Effective Strategies to Support Your Family
The first to consider is equity release through a Later Life mortgage. This allows homeowners aged 55 and above to release cash that is tied up in their home without having to sell or move out of the property. The equity released, whether a lump sum or an initial amount with more held in reserve, can then be used to gift cash to family or pay bills directly.
While this is a loan, some Later Life plans offer deferred payment options meaning they only need to be repaid once the final borrower dies or moves into care. Gifts made in this way can also be used as an inheritance planning tool, to reduce tax due on assets when someone dies.
A second solution, popular with parents who want to help their children get on the property ladder and also ideal for those in the early stages of their career who expect their income to grow, is utilising a Joint Borrower Sole Proprietor (JBSP) mortgage. These allow borrowers to include income from family members or friends (the joint borrowers) on their mortgage application, which increases how much they are able to borrow. The property only has one owner, but the joint borrower(s) share responsibility for repayments. No collateral is required.
A third solution is notional income. This uses existing assets to create an assessment of income potential, making it an effective option for those with investment portfolios. Lenders generally consider 4-5% of a discretionary portfolio’s value to be notional income. This figure can then be used to assess borrowing potential and eligibility for mortgages.
Key Considerations for HNWs
While these strategies offer effective ways to support your family, it’s essential to consider several factors. Estate planning ensures your wealth transfer aligns with your long-term goals. Consulting with a financial advisor can help you understand potential tax implications and optimise your strategy. Additionally, risk management is crucial to protect your assets through appropriate insurance and diversification.
Ready to explore your options?
All these options offer creative ways to unlock value which can be used to benefit younger family members. To help you decide which is most suitable, get in touch with the Henry Dannell team who can provide the expert advice which will enable you to make an informed decision.
Please note: a mortgage is secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. Please also note: a mortgage is secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. Please also note: The Financial Conduct Authority does not regulate most forms of buy to let mortgage.
