Coventry and Warwickshire lawyer says parents must not jeopardise their own futures when acting as the ‘bank of mum and dad’
A Coventry and Warwickshire-based lawyer has said that parents need to be careful when lending money to their grown-up children to help them get on the property ladder in case they inadvertently jeopardise their own financial futures.
Jackie Prior, Associate Director and Head of Residential Conveyancing at Coventry and Kenilworth law firm, Mander Hadley Solicitors, says that parents need to proceed with caution as their money will be exposed to risks they have little control over.
She made the comments after insurer, Legal and General, revealed that the so-called ‘bank of mum and dad’ is now worth £6.3 billion a year, making it equivalent in size to the UK’s 11th biggest mortgage lender.
“When it comes to acting as the ‘bank of mum and dad’, parents need to make sure they are not jeopardising their own futures,” said Jackie Prior.
“A parent lending money withdrawn from their own pension pot, downsize or equity release could struggle to get by in retirement, if their child is unable or unwilling to pay them back.
“Parents can face higher risks than lenders do because they are often stepping in where a commercial lender will not lend any more money. This compounded by a lack of security against the loan, formal agreements or due diligence.”
She said that a further area of risk relates to children’s relationships breaking down and risks of bankruptcy, which can make it much more difficult to recover funds.
Jackie Prior added: “In general, it is best to have a contract in place that makes clear the terms of the loan and the circumstances under which it must be repaid.
“Trust in your child is not enough when it comes to complex financial matters that could affect you for decades to come. A formal agreement could be vital for parents, children and their relationships.”
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