Tuesday, 08 August 2017 13:24

Defaulting on the bank of Mum and Dad

Apparently the bank of mum and dad is now among the top 10 mortgage lenders in the UK.  

We’re borrowing more from our parents than we are from most of the major high street banks.

It can be easy for us to accept help from our parent’s generation. We feel as though they’ve had it quite easy. They’re advanced in their careers and earning bucketloads, they have massive pensions to prop them up, they’ve probably got no mortgage or debts.

So it won’t hurt them to help us out, surely?

But how much to we actually know about our parent’s finances? Are we just assuming they are comfortable because they are further along the road than us?

Not to mention what if you are one of several children in your family who all need financial help?

Understandably, our parents want to help us. In some cases even if that might mean they are overstretching themselves.

The rapidly rising cost of long term care is a real worry for our parents’ generation – nobody wants to be seen as a burden on their family. 

But what happens if you default on the bank of mum and dad?

Securing the mortgage in the first place is only the start of the battle. Those pesky monthly repayments will keep coming, sure as anything, each and every month. And what if your fixed deal ends and the interest rate goes up? Your monthly repayment increases immediately.

If your parents have acted as your guarantor, or used their savings as collateral, and you can’t meet your monthly payment, guess what… They have to stump up. Or lose their savings. They end up living with you rather than in the care home they can no longer afford.

At the end of the day it’s unfair of us to expect the best of both worlds; credit on tap when we need it, without any formal terms, agreements or repayments.

If we want mum and dad to keep lending like a bank, we need to start treating them like one.

Buying a house is exciting but serious business. It’s probably the biggest financial commitment you’ll ever make.

Be sure you can afford what you are getting yourself into. Understand that interest rates can change. You’re probably going to be paying your mortgage for the next 30 years, so get used to it.

If you do need to borrow some funds from your parents, consider writing up a loan agreement. Some sort of promise to them that, by hook or by crook, you will pay them back. 

Of all the lenders, the bank of mum and dad is the one who does business based on a few pleases and thank yous, and a little bit of gratitude.

For more information, contact Jenny Ryan, Paraplanner, This email address is being protected from spambots. You need JavaScript enabled to view it.

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