The Bank of Mum and Dad can be great, but beware the potholes

There is a tried and trusted phrase used widely by the military. It states: “The first casualty of any contact with the enemy - is the plan.

That is not to say there is no point in planning – the old axiom simply states that plans have an unerring habit of changing and tend to do so when under pressure, i.e. the unpredictable occurs.

Life too has a habit of doing the same thing, often without warning – how many times have you said you have laid down a plan “in case you get hit by a bus?” or that you are putting aside savings “for a rainy day.”

If there was no point in planning, what, for example, would be the purpose of making a Will? And you definitely need one of those.

When it comes to being the Bank of Mum and Dad, planning for an uncertain future, a range of possible outcomes, and writing things down is absolutely vital.

You have made the decision to help out your children to get on the property ladder by providing a deposit for that elusive first home. 

That’s very generous, given, according to our research, the average parental contribution in the UK is just shy of £60,000. Yet you wouldn’t throw £60,000 at any investment unless you had planned for it and considered very carefully how you hope it’ll work out.

Have you decided to gift your children the money or is it a loan? 

If so, you need to make a plan for that and above all, you need to communicate that. 

This is perhaps the biggest repeat issue we find at the Family Building Society when it comes to helping parents finance properties for their kids – the damage that can be done by not having “uncomfortable” conversations with your kids early on.

You need to plan for all the predictable eventualities of life. You know you will get older, so when might you want the money back? You know you will not be as energetic and fleet of foot as you once were, so will you need the money to move home?

And where is the money coming from. Your savings? Your home? Even your pension? All three are popular options and all very well, but you will need to plan to make up the shortfall when you get older.

What if your child is buying with their current partner? They may be contributing equally. Or they may be contributing very little financially. Or nothing. Nevertheless they may, over time, be seen by the law to acquire an interest in the equity in the property, which may well mostly be represented by the deposit; “your” deposit. This can be avoided with the right advice and documentation.

So, let us give you a serious piece of advice for a start – never do anything with your assets, especially your pension, without professional financial and legal advice.

The thing about future gazing is that you can easily end up with a crystal balls-up.

So, pick up the phone and ask for help.

Written by Steve McDowell

The content of this blog is Steve McDowell’s personal opinion and comment, and views expressed here are his and unless specifically stated, are not those of Family Building Society. The content on this page is not intended to be advice in any circumstances.