Blog

What Does the Lifetime ISA Mean for the Bank of Mum and Dad?

Bank of Mum and Dad

For many millennials, purchasing a property is not a solo project. Many are partnering up with Mum and Dad to secure the financial help they need to get their foot on the first rung of the property ladder. With the bank of Mum and Dad funding around 25% of mortgage transactions a year many parents and first-time buyers alike are looking for solutions to make the process more attainable.

The current financial state for millennials

Also known as Generation Y, millennials are people born between 1981 and 1996. Many adults in their 50s and 60s are parents to this generation and are aware of their financial vulnerability. Becoming independent during the Great Recession has led many millennials down a tricky monetary path.

Starting a career as a young adult today is difficult and many parents are witnessing their university graduate children being rejected from job after job. Many millennials are dependant on their parents for financial help even if they are employed, meaning buying a first property is not on the radar for the majority of the under 35s.

Could the Lifetime ISA be the answer?

Launched in April 2017, the Lifetime ISA pricked the ears of the millennial generation. The previous year the Help to Buy ISA launched, but many were disgruntled by the £250,000 property price cap for those living outside of London and a singular £3,000 government bonus if you meet the contribution limit of £12,000.

Available for 18 to 40 year olds, the Lifetime ISA allows savers to use the saved funds against properties up to £450,000 and presents an annual government bonus of up to £4,000. Savers can invest £4,000 a year up until they are 50.

Whilst the LISA can be used to fund retirement as a form of pension pot, four in 10 millennials revealed they want to use a Lifetime ISA against their first property. Theoretically, an 18 year old could open a LISA, pay in the maximum contribution for 10 years (£40,0000) and receive an extra £10,000 from the government. This would mean a property pot of £50,000 at the age of 28. However, what young adult could realistically save so rigorously?  Young adults with conscientious parents.

Goodbye to the traditional bank of Mum and Dad

Traditionally, parents who are in a position to help their children buy their first home tend to give a cash gift towards a deposit. However, many parents are now harnessing the LISA on their children’s behalves and siphoning £4,000 away into an account annually. Parents who cannot afford to stump up this figure are offering incentives to their successful saving offspring such as matching the sum they deposit. Whilst the account must be opened by the child, the bank of Mum and Dad can gift money to be saved into the account.

Whilst money towards a deposit is undoubtedly helping millennials nationwide secure their first home, parents who want their money to work for them whilst encouraging their children to save are continually taking the new approach via the LISA.

An alternative investment opportunity

There are some parents, dissatisfied with low interest rates, who have been seeking alternative investment arrangements. Knowledgeable individuals want to seek a higher return on money invested into their children’s future.

One alternative to consider are retail bonds. Wellesley offers a listed bond which provide investors the opportunity to hold their investment within an ISA, whilst earning a competitive rate of return. Subscribed funds are lent to experienced property developers whose loans are secured against residential property.

Bear in mind

Wellesley Property Bond

  • The Wellesley Property Bond has a fixed rate and duration.
  • The Wellesley Property Bond is an ISA eligible investment, allowing you to earn tax free interest on your investment. Please note, tax allowances and the tax efficient benefit of ISAs could change in the future.

Your capital is at risk and interest payments are not guaranteed. Investment in any Wellesley Property Bonds are not covered by the Financial Services Compensation Scheme (FSCS). In the event of a loan default or if Wellesley Secured Finance Plc becomes insolvent, you may lose some or all of your investment, including interest payments due. If you are in any doubt about making an investment or do not fully understand the risks, you are strongly recommended to consult an independent professional financial adviser before you subscribe.

Wellesley is the singular name for the following collective of companies, Wellesley Group Limited (09811856), Wellesley & Co Limited (07981279) and Wellesley Finance Plc (08331511). Wellesley Secured Finance Plc was established as a special purpose vehicle for the sole purpose of issuing asset backed securities and is not part of Wellesley Group.

The information contained in this website has been approved as a financial promotion for UK publication by Wellesley & Co Limited (FRN 631197) who is authorised and regulated by the Financial Conduct Authority (FCA). Wellesley Property Bonds are issued by Wellesley Secured Finance Plc (the Issuer) and is not authorised or regulated by the FCA.

Wellesley & Co Limited and Wellesley Finance Plc are registered in England and Wales and their registered office and trading address is at St Albans House, 57/59 Haymarket, London SW1Y 4QX. The registered address for Wellesley Secured Finance Plc is at 1 Bartholomew Lane, London, EC2N 2AX.

 

Require further information?
Call our customer service team on 0800 888 6001 or e-mail us on [email protected]