Many of us are very familiar with the concept of the Bank of Mum and Dad. Both those giving and those of us receiving. Why has there been such a rise in such lending, and does it pose any difficulties for both sides?

Several UK-based financial institutions have undertaken research which shows 40% of young people believe that they will never own their own home. Government schemes like help-to-buy ISAs are coming to an end with no replacement in sight. These factors are then combined with property prices beginning to rise again, which means many are looking to their parents or their grandparents to assist them on the property ladder.

Last year, 62% of under 35s had help from family or friends to buy somewhere to live*, but this is not a problem reserved for the under 35s. The big question is, how large is this lending by the Bank of Mum and Dad? Last year, this amounted to £6.2 billion. If the Bank of Mum and Dad were a real bank, they would be the 6th largest mortgage provider!*

If you are thinking about either assisting or asking for assistance to get on the property ladder, you may first want to think a little into the future. What happens when your child meets a partner and they move in? Shockingly, recent statistics revealed that half of all parents do not trust their own child’s partner, and 20% think their child’s partner is money-grabbing, secretive or dishonest!

Research should always be handled with caution, but it does seem to suggest that the Bank of Mum and Dad lends £3.2billion to clients it does not actually trust, and £1.25billion to clients it thinks are crooks!

Whether monies were intended to be a gift or loan become crucially important if the relationship fails. In the Family Court, monies from family are regarded as a ‘soft loan’ which is treated differently to other lenders with an assumption it will never be repaid. This can cause additional family disharmony in an already troubled time. It can result in parents becoming involved in costly litigation in seeking to establish if monies were a loan or a gift.

Where there are problems, there are always solutions. Planning is key. Conversations about money can be difficult, but it is a legitimate desire to ensure family monies remain in a bloodline. In the Family Team, we work closely with our colleagues in our Wills, Trusts & Probate team and Birkett Long IFA to find joined-up solutions to what can be very complex family issues.

If you are in a situation like this and would like to discuss your options, please contact me.

Fran Cozens
01245 453843
francesca.cozens@birkettlong.co.uk

*Legal and General "The Bank of Mum and Dad digs deeper as average contribution rises by £6,000" report