Saturday, 21 October 2017 14:23

Dipping Into the Bank of Mum and Dad

Much has been made recently about the Bank of Mum and Dad. Recent research discovered this bank is the ninth-largest lender in the UK when it comes to loans granted for mortgages. This doesn’t look set to change anytime soon, either, with house prices still increasing and no sign of wages catching up.

Last year (2016), some £5 billion was lent to children by their parents. This year, that has increased to £6.5 billion. With such a huge jump in 12 months, it makes you wonder how much higher that figure will go. The money lent is usually put towards a deposit for a property, but some parents are actively helping meet the monthly mortgage costs, too.

With all this talk of the Bank of Mum and Dad, it sounds like something everyone could dip into. But of course, this isn’t true. Some people may not have their parents around anymore, while others may not be financially able to lend such sums to their adult children.

In the past, the idea of asking parents if they could help with a deposit on a home wouldn’t even have crossed our minds. But today, it seems as if it’s getting more popular than ever. It is understandable people would seek all the help they can get, especially from within their own families, to help them take that all-important step onto the housing ladder. But other reports have indicated there can be a downside.

You may think the downside is financial, and it can be in some circumstances. But we’ve also read stories where people have become very concerned and self-conscious about their finances. This seems to be particularly likely in cases where their parents have lent them significant sums to finance their house purchase. Suddenly, you’re not just family anymore – you are a lender and a borrower. Issues such as when and how the money will be repaid must be considered. Furthermore, considerations over the payment of interest should be borne in mind. And what would happen if the child could not meet their payments for some reason?

This can all put additional strain on a relationship. It may also be the reason some people choose not to tap into this bank, even if it might be a possible source of finance. Not everyone will feel happy with doing so, preferring instead to save as much as possible as quickly as they can, to finance the purchase on their own.

But as long as house prices remain stable or rise, and high deposits need to be found, it is understandable to see how the Bank of Mum and Dad provides a key temptation for some. We would be surprised if the figures given above for the lending from this bank start to fall in the coming years – or even to remain steady. With such a huge jump from 2016 to 2017, it would seem almost inevitable that we will see the same happen next year, too.

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