The Pros and Cons of Relying on the Bank of Mum and Dad
It’s no secret that the bank of mum and dad is a popular source of financial help for young people buying their first home. A recent study by Legal & General showed that a whopping 71% of millennials receive support from their parents when buying property. Let’s examine the pros and cons of relying on your parents for financial assistance.
What is the bank of mum and dad?
The Bank of Mum and Dad refers to a modern phenomenon where parents or family members generously contribute to their children’s or relatives’ financial needs, often as a vital lifeline in times of need. This monetary support can come in various forms, such as loans, gifts, or even a place to live rent-free temporarily.
With the escalating costs of housing, education and general living expenses, the role of the Bank of Mum and Dad has become ever more significant. In many cases, it has emerged as the go-to solution for young people striving to secure their first home in a challenging property market or pursuing higher education without being burdened with massive student loans.
Why might the bank of mum and dad not be a good idea?
Relying on the bank of mum and dad for financial support may seem like an easy solution in the short term, but it may not be sustainable in the long run.
Tapping into this source of funds can create an unhealthy dependency that, in turn, may prevent individuals from developing essential financial skills, such as budgeting, saving, and investing. Moreover, it can strain relationships within the family when parents find themselves in a position where they cannot provide ongoing assistance, either due to their own financial challenges or the need to save for their retirement.
Both parents and young adults must recognise the importance of individual financial responsibility, steering clear of relying too heavily on the Bank of Mum and Dad for long-term financial stability and well-being.
What are the other options for first-time buyers?
First-time home buyers who cannot rely on the Bank of Mum and Dad have a range of options they can consider to get their foot onto the property ladder. Here are a few:
- Taking out a mortgage – this is probably the most common option for first-time buyers, but borrowers should be aware of how much they can realistically afford ahead of time and factor in extra costs like stamp duty and solicitor/conveyancer fees.
- Government help – various government schemes, such as Shared Ownership schemes, are available to aid first-time buyers in purchasing their first home. Do your research or consult an adviser to determine your best choice.
- Unusual arrangements – with some creative thinking, there may be other solutions for financing your purchase which might suit you better than sticking to conventional methods, such as considering joint purchases with family or friends.
Get financial advice to find the right option for you
Here at Downton & Ali, we are experts in mortgages and other financing options. We can review the options available and see how you can get on the property ladder without putting financial pressure on your parents or other family members. Book a chat today with one of our experts to get the right options for your situation!
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Approved by The Openwork Partnership on 26th May 2023.
