Bank of Mum and Dad.

by Mark Johnston

With many lenders still ‘blocking’ first time buyers it is no wonder that many of them have turned to other routes for finance, such as what has now been termed as ‘the bank of mum and dad.

The UK’s bank of mum and dad is still booming as parents help their struggling children on to the property ladder. Despite the fall in property prices over the past few months their own home still remains stubbornly out of reach, with lenders still demanding large deposits.

Most parents hope that by helping their offspring in to their own home they can spare them the unsavoury experience of grotty, over priced rented accommodation.

Research has shown that in the UK some 5.5 million parents have already given in excess of £116 billion to their children to enable them to own their own home.

With lenders still ‘strangling’ the market parents many parents have opted to invest via their children rather than leave their money in banks. Simon Corringham of Faron Sutaria a London estate agent states that “many people no longer trust banks to safeguard their money and those who do are fed up with their money earning paltry interest”. These savers in particular now feel that their money would be better spent on securing a home for their children.

Data has shown that presently one in three parent in the UK, which is equivalent to approximately 10 million people, intends to help their children in this way.

There are however serious implications to be considered before parents venture down this route, especially for those who are nearing retirement age and who will be reliant on getting their cash back to supplement their retirement income. Therefore proper independent financial advice is highly recommended.

Gordon Greig, head of savings and investments at Scottish widow says that “this trend could leave some parents vulnerable in their retirement and it is questionable whether in turn the current young generation of adults will ever learn the necessary savings habit if their parents continue to bail them out in this way”.

Many advisers are now finding that as well as the normal protection advice for anyone having a mortgage, they now have to include advice to some first time buyers that they should also take out cover to the tune of the parent’s loan/repayments.

Traditionally it has always been parents who have had to insure their lives for the benefit of their financially dependent children, however there could now be a sea of change on the cards as more and more parents help their children out financially and therefore look to cover themselves against their offspring defaulting on payments.

What this means is that the children are now taking out a life, critical illness or mortgage protection policy which specifically mentions their borrowing from parents and repayments to them.

Iain McGowan, savings expert at Scottish widow has recently said “the bank of mum and dad is now starting to call in its debts and sapping more money than ever from their children. It is likely that more parents will have to ask their kids for money in the future, particularly parents who are about to retire and are struggling to put enough money aside.

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