The Bank of Mum and Dad is Britain’s most lenient lender, writing off thousands of pounds worth of loans each year, new research shows.
According to Prudential, one in five parents have taken money from their pension or stopped contributing to it to help their children financially.
However, nearly six out of 10 parents who have loaned money to children or grandchildren have written off all or some of it.
Part of the reason could be that applying for a loan at the Bank of Mum and Dad doesn’t involve any onerous terms and conditions. Three-quarters of parents who have loaned money did not impose any conditions or specific repayment terms, despite the fact that most of them initially expected to be repaid in full.
Just one in seven lent the money with an agreement of fixed monthly repayments and only 8% put a written repayment agreement in place. However, one in 14 creditor parents take a tough line and have a written agreement in place specifying exactly what the loaned money should be spent on.
In another sign that the Bank of Mum and Dad is happy to write risky loans to their families, many parents admit to lending money their children can’t repay. Of those who have written off some or all of their loans, two in five did so because their child simply couldn’t afford to pay them back, while one in seven said their child never had any intention of repaying them at all.
Kirsty Anderson, a retirement income expert at Prudential, said: “I’m sure every parent would love to be in a position to help their families when they’re faced with significant financial challenges and our research shows that many are doing just that.
“Whether it’s helping with a deposit to buy or rent a house, or clearing student debt, the Bank of Mum and Dad plays a vital role in the finances of younger people. However, it is important that parents remember to consider their own futures when deciding on making loans to their families – for example, money taken now from savings and investments intended to provide for retirement could make a real dent in your income when the time comes to give up work, especially if you eventually have to write off all or some of the loan.
“But of course, family life is not always straightforward and many parents who are considering dipping into their pension savings or stopping saving altogether could benefit from a consultation with a professional financial adviser before making any decisions. Pension saving is for the long term and for most people is most effective when they save as much as possible for as long as possible during their working lives.”
