What can go wrong with the Bank of Mum and Dad?

Date Published: 20/12/2019 12:46

Did you know that the Bank of Mum and Dad is the sixth largest lender in the UK?

In 2019 the ‘bank’ gave or loaned over £6.3 billion. That is a lot of money for a bank that isn’t regulated and whose members are not likely to have any qualifications! So, what could possibly go wrong?!

A report by the London School of Economics found that about half the money given or loaned was for deposits to buy a house, with the rest being used for associated costs, such as legal fees and stamp duty.

It is called the Bank of Mum and Dad, but most parents don’t act like a bank. Few take financial or legal advice or put anything in writing. Often there is no discussion about whether the money is to be paid back or how it is to be paid back. Is there to be any interest added for example? Basically, we really don’t like talking about money, even with our closest relatives and even when relatively large sums are involved. And this means things could go wrong and that could cause bad feelings within a family.

So what are the things to look out for?

Well, we are not legal experts, so please do get some advice from a solicitor (and we can help you find one). But we do know a few things to consider include: is your son or daughter living with a partner? It might be worth looking at a Living Together Agreement. This can spell out who benefits from the ‘gift’ you give your child and offers some protection should the relationship break down.

Who will actually be the owner? This has implications over various issues, including your Stamp Duty liabilities. Basically, if the owner already owns a property the rate of Stamp Duty will be higher. Also be mindful of tax implications if you have a joint mortgage with your child. There are ways of supporting the mortgage without being counted as a joint owner. Again, one to take advice on and find yourself an independent mortgage advisor who will weave through the difficulties and find you satisfactory solutions.

We all want to help our children and many of us want to help them get on the housing ladder, but you do need to take advice and look at all the options before signing on the dotted line.

Please do get in touch if you think we can help on 01246 435 996.

No individual investment advice is given, nor intended to be given in this article and liability will be accepted in respect of any action you may take as a result of reading this article. If you are unsure you are urged to take independent investment advice.

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