The 'Bank of Mum and Dad': what you need to know about helping your child financially
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Are you considering offering your child financial assistance to help them get onto the property ladder?
We speak with Alistair MacFarlane, partner at Dutton Gregory Solicitors in Winchester, who reveals how you can provide the financial support your children may need and if it is a good idea.
Q: What are we talking about when we refer to the ‘Bank of Mum and Dad’?
A: We’re referring to the receiving of money from parents or a family member. Increasingly young people, particularly first-time buyers, are turning to loved ones and using family loans when buying a home or putting down a deposit. This can help lower monthly repayments and interest rates.
Q: Why are more people turning to family members for financial support?
A: Rises in house prices and living costs are making it harder for young people to save for their first home. The 'Bank of Mum and Dad' has never been busier, with a 2018 report by Legal & General estimating that one of four housing transactions made that year depended on contributions made by family members.
Q: How can you provide financial assistance to a family member?
A: There are several ways you help a loved one financially. You can gift them the money, loan it to them or set up a joint investment. It’s best to seek professional advice to help decide which is the best option for you.
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Gifting the money is the simplest choice, but can come with the greatest risk, as you have no say in how the money is used. If you decide to loan them the money, a solicitor such as myself can help you establish conditions to protect your assets, and offer tax-planning advice. You can also agree on how they will repay the personal loan they borrow.
With expert guidance, a joint investment is easy to set up and is a great way for you to help your child buy a home and invest in your family’s future. If the property is sold, you could use the return to help boost your pension savings.
You may also decide to set up a Trust that uses money from your estate, which may have tax planning advantages.
Q: What will I need to consider before agreeing to provide any money?
A: First, decide how much money you want to pay them. This will depend on what you can afford, why the money is needed and possibly how many other children you have. I always recommend that you should treat each child fairly, and offer them all the same amount.
If your child is in a relationship, contemplate asking them to sign a Cohabitation or Prenuptial Agreement before they receive the money. This can help ensure it will be spent wisely and is protected in the event of a divorce or separation.
You should seek help with tax planning and consider updating your Will to reflect the changes to your assets.
It’s also best to speak with your intended lender beforehand, as some banks may not be comfortable approving a mortgage loan that’s been heavily funded by other family members.
Q: Why seek help from a solicitor?
A: I can provide bespoke legal advice, explain your options, make you aware of any relevant tax considerations and put protections in place, so you can provide the financial support that your child needs.
In our first meeting, we’ll discuss your situation and outline the next steps to make this process simple and stress-free, helping you to make the best decision for your family.
Dutton Gregory Solicitors offer a range of expert legal services, delivering first-class professional advice and guidance to their clients since 1947. They have offices in Winchester, Southampton, Chandler's Ford, Poole, Bournemouth and London.
Visit duttongregory.co.uk for more information, or call 01962 844333 to speak with a member of the team.