There’s a bank in town which outperforms many of its competitors. We’ve all heard of it, most of us have borrowed from it, some of us have even been lucky enough to have received some sizeable and generous donations from it and there are millions of branches around the world. What are we referring to? ‘The Bank of Mum and Dad’, of course.
When faced with needing a ‘loan’ or quick cash for any purpose, chances are that you have either borrowed from, or attempted to borrowed from “The Bank of Mum and Dad”. Most commonly these loans are for;
- Debt repayments
- Rent and household costs
- Home loan deposits
- Unexpected bills; e.g medical costs or vehicle repairs, etc
Experts are saying that the shift toward family lending has sped up in the wake of immense pressure on the traditional banking sector, which has been forced to lift rates and minimum deposit requirements, as it scrambles to adhere to new regulations and expected future tightening. Overall, 55 per cent of first-time buyers are said to now receive financial assistance from their parents, according to 52,000 interviews conducted over the past 12 months. Where a cash injection is involved, the average amount is $89,000 – wow!
How the Bank of Mum and Dad ranks
‘The Bank of Mum and Dad’ now ranks as the 10th largest lender in the country! Who would have thought?
The Bank of Mum and Dad and inequality
This has got people thinking… What about the people whose parents can’t afford to help them out? What happens to them? Unfortunately, those who don’t have wealthy parents are at a significant disadvantage. So, will this increase the divide between the rich and poor?
Ways to draw from the Bank of Mum and Dad
If you are lucky enough to have a parent(s) who can help, here are some ways to draw from ‘The Bank of Mum and Dad’:
- Gifting cash or a deposit
Many Baby Boomer parents have enjoyed substantial capital growth on their homes and investments in recent years, meaning they may have additional funds available to help their child with a personal loan or funds for their own house deposit.
- Acting as Guarantor
Guaranteeing a loan can help a child secure a loan with little or no deposit. In the case of home buying it can be a way to avoid lenders mortgage insurance.
But it’s a risky strategy. If the borrower defaults on the loan, the bank will turn to the guarantor to make good with the loan. That can leave older parents financially skewered and cause some solid family friction!
If you plan to take this route, be sure to speak with your solicitor so that you enter the agreement with your eyes wide open. Whether you’re lucky enough to have a parent who can help you financially or not, it’s still tough out there.
At Life After Debt ® ~ we don’t lend money like Mum and Dad ~ we provide debt advice, assess debt solution options to help you reduce your debt (without taking out a new loan), and discuss how to avoid bankruptcy by offering affordable, practical financial solutions, proven to relieve hardship. Even if you have bad credit and cannot get a loan, we can discuss debt options with you to avoid Bankruptcy and legal action. There really is Life After Debt ®
We provide honest and sympathetic, without judgement, advice. Contact us to see how we can help you today.