The awkward questions around bank of Mum and Dad
Chris Prior is manager of sales and distribution at Bridgewater Equity Release
Much is made of the existence of the Bank of Mum and Dad and – more recently the Bank of Gran and Granddad – but little is said about how it operates.
In fact, the whole concept is simplified to such an extent that it is almost assumed that a generation of borrowers are making withdrawals with all the emotional detachment of an ATM transaction.
What is often glossed over is the sometimes awkward and difficult discussions that lead to family members lending or gifting funds to their offspring, not to mention the inadequacy and guilt that can be felt by those who simply aren’t in a position to help.
Some recent research conducted by the Equity Release Council alluded to just how trying a time it can be for those who support their adult children financially.
The trade body found that 69% of respondents thought that such arrangements had an emotional impact on the entire family, including parents, the children borrowing the funds and other siblings. Indeed, some of the common problems cited included the frustration at varying levels of help enjoyed by different siblings and annoyance at the continuing need for parental support.
What on the surface seems like a pretty simple financial gesture can actually open a can of worms and cause familial ructions if not handled with the appropriate sensitivity.
Delving deeper into the findings, 10% of families keep secrets from each other in order to conceal the sums involved, while another tenth of recipients worry that their parents will need the money in later life and 9% feel embarrassed at having to ask their parents for help in the first place.
It is not just young adults who are in need of assistance either. Although 51% of ‘family bank’ customers are aged under 24, 34% are aged between 24 and 34 while the remainder are older than 35 showing that it is not just first-time buyers seeking assistance, but movers and existing mortgage holders who sometimes need help.
The final facet of the survey covered those who are concerned about whether their children will ever be able to stand on their own two feet financially and whether they will be able to help them when the time comes.
All this shows the dilemmas that intergenerational lending can create, particularly when parents aren’t able to generate the funds they feel compelled to proffer. What is not mentioned in all dispatches about the Bank of Mum and Dad (and Gran and Granddad) is that equity release can be one way of helping family members foot the bill of any such lending.
Many older homeowners don’t realise the value of the equity they are sitting on and are also unaware they can release it for such a use. They shouldn’t feel pressured into any arrangements, but if they feel after discussions with their family and financial advisers that equity release is right for them, then it could lessen the emotional impact – not to mention the financial difficulty – of assisting their offspring.