New research shows that in many cases the Bank of Mum and Dad doesn’t expect its loans to be repaid in full.
According to Prudential, 44% of parents who have lent money to their families admit it is unlikely that they will ever see the full amount of money again.
On average, those who have lent money to their children or grandchildren are owed £12,700, and more than one in 10 (11%) of the Bank of Mum and Dad’s loans are for figures of more than £20,000.
However, the potential for significant financial loss from written-off loans doesn’t appear to deter them.
More than two-thirds (68%) of the more than 1,000 parents interviewed have already loaned money to their families, or have definite plans to do so in the future, while the remaining (32%) all hope to be in a position to act as their children’s preferred lender some time in the future.
Of those parents who are considering lending to their offspring in the future, many are also unsure they will get the money back – nearly two-fifths (37%) think it is unlikely they will be repaid, while only just over a quarter (28%) expect to be repaid eventually if they are called on as a lender.
Stan Russell, a retirement income expert at Prudential, said: “As a parent myself I completely understand that most of us who are in a position to do so would want to provide financial help to our children. But as our research shows, in many cases this financial support ends up being gifts from Mum and Dad rather than the loans from the Bank of Mum and Dad they start out as.
“These written-off loans risk making a long-term dent in the finances of parents, often at the stage in their lives when they would like their money to be invested for the future and working hard for them in a pension. If the choice is between providing loans to their children or continuing to contribute to a pension, many parents could benefit from a consultation with a professional financial adviser before making that decision.”
Backing up a report published by the Social Mobility Commission in March 2017, which revealed that young people are increasingly reliant on the Bank of Mum and Dad to help fund the purchase of their first house, Prudential’s research shows that two in five loans from parents went towards a deposit for a house or buying a home outright.
The second most popular reason (28%) for lending money was to help buy a car. But the study shows cash is also going on paying off student and credit card debts as well as for general living expenses.
Major financial commitments the Bank of Mum and Dad lent money for
| Financial commitment | Percentage of parents lending |
| Purchase of a house | 39% |
| Purchase of a car | 28% |
| General living expenses | 21% |
| Student debt | 16% |
| Credit card debt | 16% |
Source: Prudential research
Russell said: “As many younger people struggle to get onto the housing ladder it has become widely accepted practice for parents to help out where they can, but children going to the Bank of Mum and Dad to help cover everyday living expenses is a worry.
“For many parents, repeated pay outs to their children could have a detrimental impact on their own long-term saving for retirement.”
