TERMS AND CONDITIONS AT THE BANK OF MUM AND DAD
29 September 2018
The expansion of the Bank of Mum and Dad (BOMAD) is driving a switch to tougher lending rules, new research* from the UK’s leading independent equity release adviser Key shows.
BOMAD is firmly established as a major mortgage lender and parents are increasingly helping with a wide range of financial needs. However, as BOMAD continues to grow it is now becoming a more responsible lender, Key’s study found.
Nearly half of over-55s planning to help out adult children say they want to ensure the money is not squandered and that grandchildren benefit from any handouts. Around a fifth (22%) plan to set specific rules on how any money is spent while 36% say they will discuss what the cash is used for before paying it out and 14% want to ensure their children seek financial advice on how to spend or invest the money.
Only one in five homeowners aged 55-plus said how the money is spent by adult children is not important to them. Key’s nationwide research among homeowners aged 55-plus shows they are generous with their money – around 46% say they have already helped children with handouts worth more than £5,000 while another third (30%) plan to make payouts of more than £5,000. Around 11% will give more than £20,000.
The price of BOMAD
Part of the reason for the switch to tighter lending criteria may be a realisation that helping children can mean parents having to cut back.
Around one in six (16%) of parents say helping children has hit their own finances but 78% say they are worried that helping children out now could leave them in financial trouble later in life.
Will Hale CEO at Key said: “The Bank of Mum and Dad is firmly established as a part of the mainstream UK lending market and more and more parents are banking on helping children if they can afford to.
“However, as with any other lender, they have to set limits on how much they can afford to lend and on what the money is used for. Stipulating that children should receive financial advice is a sensible move as good advice is key to making sensible financial decisions. That applies to BOMAD itself as they should not lend money without considering the short, medium and long-term financial implications for themselves.
“Of course, intentions are all well and good and while BOMAD might be getting a bit tougher there is still a risk that when it comes to saying no or setting rules that parents will find it too difficult. That is why including all parties in the advice process is vital.”