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Parental loans come with no strings attached

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28/02/2018
The Bank of Mum and Dad is the UK’s 9th largest lender, but the majority of parents don't formalise the agreement, which may put them at risk legally.

One in six first-time buyers are entering a long-standing loan agreement with their parents in order to get on the housing ladder, according to research from Post Office Money. The average amount borrowed is £24,347, approximately 50% of the average first-time buyer deposit. Those who gift the money give an average deposit of £32,101.

Parents on the whole are very keen to help their children realise their property ambitions (83%), but commonly have to make this agreement on the understanding it will be a loan (38%).

Despite the large amounts of money being shared, families generally don’t formalise these loan agreements. Some attempt a verbal agreement (29%) and some don’t discuss the terms of the loan at all (19%). Only 16% consult a third party, such as a solicitor.

The majority of parents (83%) do not put a letter of intent or deed of gift in place to formalise their financial support. Without this, both parents and buyers are left legally vulnerable and could even be pursued for additional costs such as stamp duty.

Only one in five families will agree a regular repayment plan (21%) with kids paying their parents back at an average of £500 amount a month for four years. Most merit parental trust – only 4% of young buyers who borrow will miss a payment.

Despite these worries, most buyers don’t see that these arrangements will lead to difficulty in their relationship with their parents. Some families will even grow closer as a result (15%).

Owen Woodley, managing director, Post Office Money, said: “The level of support that the UK’s parents want to provide their children is truly heartwarming. High house prices and a challenging cost of living has meant that families have had to increasingly live out of each other’s pockets to make the most of their combined financial capability. Indeed, 46% of young people who receive money from their parents anticipate they will support them financially later in life. Despite this, it’s important for everyone to be clear about the nature of their agreement so that everyone’s expectations are aligned.

Corinne Sweet, psychologist and psychotherapist, said: “Talking about money – even with our closest loved ones – can sometimes make us feel awkward. It’s important to try and see things from each other’s perspective in order to maintain a good relationship.”

Related: See YourMoney.com’s Help your kids buy a house without handing over stacks of cash for more information.

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