The perils of mates’ rates
GENEROUS Britons are increasingly giving family and friends financial support but unless they set a few ground rules, they risk losing money and falling out with their loved ones.
One-in-four adults now borrow cash from friends and family, but almost half admit that they do not always pay it back in full.
With the average amount borrowed being a hefty £1,093 according to research from Charter Savings Bank, generous family members could feel ill used.
The bank’s executive director Paul Whitlock said as the cost of living rises and family incomes are squeezed, more people are leaning on their loved ones: “Many are happy to help out financially, but that can come at a cost, particularly if the recipient isn’t able to pay it back.”
Boomerang kids
Cash handouts are not the only way families are helping each other. Nearly a million more young adults are now living with parents compared to two decades ago, according to a study by think tank Civitas.
Separate research shows that over half of Britons have lived with their parents for longer than a year while in full-time employment, of whom just a third paid some form of rent.
Even those who do help pay just £230 a month, a fraction of the average £690 monthly rent in England.
Lisa Evans, spokesperson for MyJobQuote.co.uk, which carried out the research, said high house prices and low starting incomes are to blame: “Those lucky enough to be able to live with their parents and pay cheap rent may as well do so while they are able.”
Friends in need
Martin Lane, managing editor of comparison site Money.co.uk, said deciding whether to help people financially can be tricky, especially if you fear they cannot afford to repay the cash: “You need to take steps to protect your money when a friend in need comes calling.”
Lending money can spare loved ones from paying interest to the bank or even a payday lender, but he said you need to consider your own financial wellbeing too: “If things went wrong, you could end up losing more than just your money.”
The first question to ask is whether you can afford the loan yourself: “You may not get the money back for months, if at all. How would you deal with an unexpected expense in that time?”
You will technically lose money if you take cash out of a savings account or reduce the amount you pay down on your mortgage or credit card in a bid to help: “Although it can seem harsh, if you do not charge any interest you are essentially footing the bill for lending your own money,” Lane said.
Friend indeed
Decide whether you trust the recipient or whether you will have to chase them to get your cash: “Be wary if they do not have much money coming in and are already struggling to pay their bills.”
Lane said you should be particularly cautious if others have previously lent them money then struggled to get it back: “You could end up losing your money and your friend if they are unable to pay.”
Consider putting things on a formal footing by agreeing exactly how much you will lend, the repayment term, as well as any interest rate and monthly repayments: “You can draw up a written agreement so everybody is clear in case of disputes.”
If the borrower ultimately refuses to pay, you can chase debts of up to £5,000 through the Small Claims Court, but for larger sums you may need to take legal advice.
The OneFamily Intergenerational Report showed that 4.5 million adult children aged 18 to 34 are still living with their parents.
While many parents feel bad about charging money, the report said it can also improve family relationships if everyone makes a valued household contribution.