Bank of Mum and Dad - It's time to get serious.

Posted on 15 September 2022

Recent research by Legal and General showed that around 150,000 of property purchases every year are only made possible by the Bank of Mum and Dad. On top of that, nearly 20,000 more only happen because the Bank of Gran and Grandad gets involved!

Put simply, the Bank of Mum and Dad is the most significant new player in the home-buying scene. The total value of Bank of Mum and Dad is now a staggering £6 billion per year by many estimates, while Savills estimates it to be closer to £10 billion!

If that level of lending were done by one institution, it would make the ‘Bank’ one of the ten biggest mortgage lenders in the UK.

All of which is very serious money. So, Bank of Mum and Dad, it’s time you got serious too.

It’s ok to be the Bank of Mum and Dad

We’re not trying to dissuade parents or even grandparents from helping your kids into the housing market. Without this ‘Bank’ playing an active role, the number of new purchases in the UK would easily halve. Parental lending is currently vital not just for the dreams of individual kids but for the broader economy.

Being ‘serious’ is about recognising that importance. Whether the cash is coming from savings or a pension, it’s clear from the ‘size’ of the Bank of Mum and Dad that this help is a standard way most people now enter the housing market.

Shockingly, only 10% of parents take financial advice before supporting their child with a home purchase.

It’s ok to lend, instead of give

Although some parents make their support as a gift, many view the money they use as an investment and want it back. Recent research has shown that 77% of assistance from the Bank of Mum and Dad has expectations of repayment.

If you’re one of those making the support in the form of a loan, then that’s where getting serious is gets important. Worryingly, less than 10% of parents take any form of financial advice before helping out. Do you really want to be in the 90% of people who just busks it or the 10% that take financial advice?

Be aware too that a study by Legal & General and the Centre for Economic and Business Research in 2018 found that 17% of parents supporting their children believed themselves to be worse off in real terms as a result.

All of which makes being part of the Bank of Mum and Dad a serious business.

It’s ok to set expectations

It’s only human to want to help your children, and it’s only human for children to look to their parents for support. But it’s also only human to find talking about money difficult within families. It can get awkward or embarrassing, and it can potentially change relationships.

When you’re dealing with tens of thousands of pounds to help your kids put down a deposit, it’s probably the most significant financial investment one generation makes in another during your lifetimes. It’s ok to set expectations.

You must be clear about whether the money involved is a gift or a loan and what that means for everyone involved.

It’s ok to see it as ‘your money’

Supporting your child onto the housing ladder is a super generous act if you can do it. But generosity doesn’t mean you should start thinking about five or six-figure sums as if you’re handing over Monopoly money.

It’s entirely natural to want to help your child in particular, rather than a partner they might be buying with or — in increasing numbers — friends they might be buying with. In either of these scenarios, you’re investing in and helping not just your own family but other people too. And let’s not even go to how much you might like or trust your child’s partners or friends…

At the end of the day, this is real money, and it’s YOUR MONEY. It’s perfectly acceptable to see it that way and entirely correct to take steps to make sure it is used wisely.

It’s ok not to want Kev, your daughter’s boyfriend, to get his hands on your cash for the foreseeable.

An effective way of protecting yourself, your child and your money is by making sure your cash is attributed specifically to your child’s share. And by being able to monitor your investment.

One way you can do this is by using MaryR, and their unique share tracking platform, and binding it with a Deed of Trust. That’s just a simple document that a solicitor can draw up in the home buying process. It legally ring-fences any gift or loan from you directly to you or your child’s share of the property, bringing security to both parent and child.

By putting things on a clear and legal footing, you ensure everyone is totally onboard about the transaction from the outset.

Using a formal legal agreement can also make everyone more convinced of the value of the Bank of Mum and Dad. Research has shown parents are likely to invest far more if they can be confident of repayment. 10% of parents said they’d lend £10,000 to £50,000, but that almost doubled to 19% if they knew the loan would be repaid!

There’s a lot of economic uncertainty. It’s not mean to expect your money back one day.

It’s ok to want your money back

The ‘sector’ may be large already, but the size of the Bank of Mum and Dad could well continue to grow, especially as the economic pressures and mortgage rates increase. Things are tight right now, so it isn’t surprising that some forecasters expect the Bank of Mum and Dad to play an even more prominent role in the housing economy over the next decade than in the last.

But those expectations of support and investment come at the same time as parents are feeling the financial squeeze too. What may have felt affordable and natural in 2017 might not feel the same way five years later, let alone in another five years!

With all this in mind, it’s much better to be serious about how the money is structured from the outset — not just how it is paid over, but how it is repaid too. We can help with this process. With MaryR, you can monitor progress and set up repayment schedules over time. When your child is ready, you can be sure you get the return you want.

Having certainty is the natural thing to do. Being serious about what the Bank of Mum of Dad gives children — AND parents — that certainty in even the most challenging economic times.

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