Bank of mum and dad: help or hindrance?

iStock-598174744-065621-editedThe Bank of Mum and Dad advanced £6.5 billion in 2017, making it the UK’s ninth largest mortgage lender.  In 2016 a third of prospective homeowners received financial help to purchase their homes, from friends and family, and in 2017, that figure increased to 42%.  On average assistance from the Bank of Mum and Dad has risen from £17,500 per person in 2016, to £21,600 in 2017, and this figure is set to increase with millennials being the biggest recipients of funding.  Currently 79% of funding assists people under the age of 30 to purchase their first homes.  Perhaps unsurprisingly there are some geographical differences, with parents in the south west of England providing a greater level of financial support per transaction on average.

Some may say that young people today do not have the same opportunities that the baby booming generation had, including affordable housing, defined benefit pensions and free university education.  Parents do wish to help their children get on in life, and the bank of Mum and Dad is a testament to their generosity, and also a symptom of changing times.

This can cause intra-familial challenges also.  Whereas 40% of parents provide equal financial support to their children, 18% of parents will help the eldest child purchase a property, and 16% appear to favour the younger child.  National house price differentials make little difference whereby most parents appear to provide a fixed amount of financial help regardless of where their children choose to live.

But how is such generosity dealt with, in the event the child, who has benefitted from the generosity of their parents, co-habits, or marries their partner, and the relationship or marriage then breaks down?  Frequently Mum and Dad find themselves not only assisting their children, but also unwittingly, their children’s former partners. 

It is essential therefore that parents protect their funding, and that all parties seek independent legal advice from a specialist family lawyer.  Monies can be protected whether by means of a Declaration of Trust, formal loan agreement, or by means of property ownership.  Mum and Dad should also encourage their children to enter into Co-habitation Agreements should they wish to co-habit with their parent, or Pre-Nuptial Agreements in the event they wish to marry, in order that funds are protected and do not dissipate sideways.