Don’t let Bank of Mum & Dad get taken a loan of
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WHAT ROLE DOES THIS ‘BANK’ PLAY IN FAMILY FINANCES? FOR many people, the Bank of Mum and Dad could make the difference between achieving their financial goals and struggling to get there.
Parents of university students typically give their children about £287 per month to support them through their studies, according to insurers Aviva.
One in 10 parents in the UK with children at uni say they give their child about £750 a month on average.
Research from Legal & General and economics consultancy Cebr also found the Bank of Mum and Dad is a major lender when it comes to giving the younger generation a helping hand buying a home.
Parents will lend about £6.5billion for such purchases in 2017 and be involved in more than a quarter (26 per cent) of UK property transactions, the research indicates.
Meanwhile, parents with grown-up children still living at home spend an extra £456 on them annually compared with empty-nesters, according to the Centre for the Modern Family think-tank set up by pensions provider Scottish Widows.
That research, carried out last year, found that as well as shouldering the cost of their child’s basic needs – bed and board – parents are also forking out for services used by their adult children, such as Netflix, their mobile phone bills, holidays, haircuts, clothing and even beauty treatments. COULD PARENTS FACE HIDDEN COSTS? MUTUAL insurer Royal London warn parents to be aware of unexpected costs and risks when helping out children financially. They have produced a “good with your money” guide to highlight potential pitfalls.
Their personal finance specialist Helen Morrissey said: “Making the decision to hand over a large sum of money, whether as a loan or a gift, is a major financial commitment and parents need to consider all the options before deciding to do this.
“Parents must ensure they are aware of the potential tax implications, and Many young people rely on the Bank of Mum and Dad to get through education or get on the housing ladder. But there are hidden pitfalls which parents should consider before lending a helping hand. VICKY SHAW reports. consider that giving away or lending a large sum could affect them down the line if their circumstances change.
“Arguments over whether money needs to be repaid, or over what period, can cause considerable harm to the parent-child relationship.”
Morrissey suggests taking legal or financial advice and putting agreements in writing. SO WHAT ARE THE PITFALLS? Tax. Parents should understand the possible tax implications of being named on the deeds of a property bought with their child. Future financial hardship. Parents can hand over what they believe is an affordable amount only to find their own circumstances change due to redundancy or ill health and they are short of money. Similarly, children may initially be able to make repayments but struggle once they have children or face unemployment or work absence due to sickness. Potential falls in house prices. Parents must consider their position in the event of a property needing to be sold in the event of a housing market downturn. If the property is in negative equity, parents may not see their money returned Relationship changes. Parents will want to help their own children but may want to think about what would happen if their child forms a new relationship or a relationship breaks down. Could there be a dispute about how much of the house is owned by each party?