Family Financial Agreement
When a bank or financial services provider offers a customer a loan, it’s understood that there will be small print. The terms and conditions under which the loan is offered and accepted are put in place to make the agreement as clear as possible and to protect both parties. What would happen if these agreements weren’t formalised in such a way? Consider for a moment, that one of the UK’s biggest lenders does not require a compulsory loan agreement. In some cases, that lender does not even discuss repayment at all. It would appear to be quite a risky strategy, don’t you think? I am of course talking about the ‘Bank of Mum and Dad’.
Post Office Money research launched last week revealed that over 2 million first-time buyers bought their home with the help of a loan from their parents. However, the vast majority (87%) do not put a proper agreement in place. With the average loan amount being over £24,000, it’s unsettling to know that most families are simply making a verbal agreement (29%) or not discussing the terms of the loan at all (19%). We also know that these parents are deciding to loan (rather than gift) the money as they recognise they will need the money to sustain their lifestyle in later life or so that they are also in a position to help their other children in the same way. While I of course recognise that financial support from parents is based on a very different kind of relationship, I also believe there are lessons to be learnt, and knowledge to be shared, which can support parents embarking on this journey with their child.
Talking about money is not easy for many, even with our nearest and dearest, and we all carry a certain amount of emotional money baggage. Therefore it’s easy to understand how discussing entering into a long term financial arrangement with a loved one could potentially get emotionally charged and have people running for hills. And, even where families do feel confident sitting down to talk through the specifics of their agreement, it’s unlikely they will be aware of all they should be considering as part of the discussion. It’s vital, for instance, that parents giving financial support to first-time buyers provide a letter of intent or deed of gift via their solicitor to formalise their financial support, yet 83% of parents are not doing this, and many may not even be aware of it. What if circumstances were to change, for either party? What are the implications if the property is being bought with a partner? Parents will continue to play an important role for many aspiring home owners into the future and they will need help to protect both their finances and their relationship.
And so, I’m proud to say that Post Office Money have partnership with The Money Charity and relationship psychologist Corinne Sweet to launch The Bank of ‘Mum & Dad’ Conversation Guide. It’s simple and easy to read and provides a framework to help both parties step into each other’s shoes, addressing the emotional and the practical considerations and is a must read for anyone thinking about asking for or offering financial support to get on the ladder.
To find out more click here.