First-time buyers borrowing from the Bank of Mum and Dad should consider putting together a formal agreement to avoid family strife.
That’s the message from the Post Office Money, which has discovered only one in five buyers agree a monthly repayment plan with their parents for money loaned to buy a home.
The majority of mums and dads are not formalising the agreement with their son or daughter, failing to provide a deed of gift or a letter of intent. And this, warned the Post Office, could put them at risk legally.
In a bid to help parents and children navigate this sometimes delicate new strand to their relationship, the Post Office has teamed with The Money Charity to produce a guide to talking to your family about borrowing such a large sum.
The average loan, the Post Office’s research revealed, being paid by parents to help their child on to the property ladder is £24,347. What’s more, a third of first-time buyers are purchasing homes using a financial gift or loan from their family.
But despite such large amounts of cash being borrowed by so many only one in six first-time buyers are entering a long-standing loan agreement with their parents.
There are also emotional issues which can arise. The research discovered many young borrowers have initial concerns about feeling indebted to their parents with some worrying it might adversely impact their mum or dad’s own financial situation.
Corinne Sweet, a 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.”
She added: “Parents should try to be sensitive to how their children feel about borrowing money and make sure that the details of the agreement are well-defined so that everyone is clear on what is expected.
“People borrowing from their parents should be patient and willing to have an open discussion about how the arrangement will work long term, keeping in mind the big financial commitment their parents are making.”
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