PARENTAL GUID­ANCE

Be­fore bor­row­ing from the Bank of Mum and Dad to get on the prop­erty lad­der, there are things to con­sider

Harefield Gazette - - HOME ADVICE -

The hous­ing lad­der is a tough climb. While monthly loan pay­ments can be cheaper than rent­ing, find­ing enough cash for the de­posit is dif­fi­cult – many mort­gage deals want 20% up­front.

En­ter the Bank of Mum and Dad – BoMaD for short – where par­ents lend to help with that home pur­chase.

In­surer Le­gal & Gen­eral cal­cu­lates that BoMaD is worth around £5.8bn this year.

Most ar­range­ments have no for­mal agree­ments, and that could be dan­ger­ous.

BoMaD money – of­ten run­ning into tens of thou­sands of pounds – can cause prob­lems rang­ing from a fail­ure to re­pay to dis­putes among sib­lings when one gets cash and oth­ers miss out.

Will Hale, of Key Re­tire­ment, which spe­cialises in turn­ing value in homes into life­time loans via eq­uity re­lease, says: “Par­ents nat­u­rally want to help chil­dren and grand­chil­dren, but it is des­per­ately sad if that comes with emo­tional fall­out on top of fi­nan­cial costs.” Key Re­tire­ment es­ti­mates one in four chil­dren found hand­outs from par­ents caus­ing fric­tion with other sib­lings, while one in five par­ents don’t tell chil­dren how much sis­ters and broth­ers have been given.

Most par­ents lend money – mak­ing gifts with no re­pay­ment is less com­mon – based on need.

But what starts as an act of gen­eros­ity and in­ter­gen­er­a­tional help, can lead to fam­ily and le­gal bust-ups.

Will warns that par­ents and chil­dren need to be clear from the out­set if hand­outs are loans or gifts.

With such large sums of money in­volved, it could be bet­ter to get in­de­pen­dent ad­vice first rather than risk a dis­pute which might end up in court.

Out­right gifts where no re­pay­ment will be made have fewer po­ten­tial prob­lems than loans – other than per­haps caus­ing jeal­ousy and up­set among other chil­dren.

Loans are more con­tentious, with greater pos­si­bil­i­ties of dif­fi­cul­ties. Many of these are caused by re­la­tion­ship break-up – ei­ther the par­ents or the chil­dren – and a fail­ure to re­pay. One typ­i­cal sce­nario is lend­ing to a cou­ple which then splits up. Un­less the pa­per­work is cor­rect, there is a risk one part­ner will take the BoMaD money and never re­pay it. An­other is where there are step-chil­dren – un­rav­el­ling the re­sults of re-marriages can be dif­fi­cult and try­ing to be fair to all is never easy. And if the par­ents break up, then the loan could form a fea­ture in the di­vorce set­tle­ment.

Mak­ing a for­mal agree­ment when bor­row­ing from rel­a­tives could save a lot of heartache

How much one sib­ling gets com­pared to an­other could cause dis­putes

Get­ting onto the prop­erty lad­der is an ex­pen­sive busi­ness

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