In this current financial climate, more and more parents are being asked to step-in and help with their children’s financial woes.
I am pleased to report that the bank of mum and dad won’t credit score, send round the bailiffs and generally treat their customers fairly.
These are the main products currently supplied from the bank of mum and dad:
With the current mortgage market on it’s knees, it is understandable that the banks don’t want to grant 100% first time buyer mortgages to the sub 30 age group, particularly with rising unemployment and this age group being the most vulnerable.
Lenders are willing to provide the best interest rates to those first time buyers with chunky deposits. The deposit ideally needs to be around 25% to stand a chance of them getting the better deals. This is where the asset rich parents are now stepping in to provide these deposits and get their children onto the property ladder.
The parents are raising the deposits in a number of ways ranging from a re-mortgage, a secured loan and in certain instances selling their own property, downsizing and giving the cash to the kids. With an uncertain property market ahead, the downsizing route is, in my opinion, is probably the smartest move to get the kids to leave the nest as no borrowing interest charges will be payable.
Within the last few months a new guarantor mortgage product has been developed by the innovate new bank Aldermore. They will grant a 100% mortgage fixed at 6.48% for 3 years. This is not cheap.
The parents must guarantee 25% of the mortgage debt and provide a charge on their own property. This means that if the child doesn’t pay the bank can force the parents to step-in and pay instead. This dramatically reduces the risk to the bank.
If you are unable to raise the money via the “house deposit” option above the guarantor mortgage is certainly worth consideration.
In very much the same way that under 30′s have been frozen out of the mortgage market, obtaining a small personal loan is just as challenging.
Over the last couple of years a new type of loan has been developed by small niche lenders to fill this HUGE lending gap. Unlike the big banks these lenders are lending £10′s of millions instead of £10′s of billions to young people who are lucky enough to have a parent to step-in and guarantee the payments.
The rates are not cheap; roughly 3% interest charge per month or 49.9% APR. However, when you compare this to pay-day loan rates they are certainly more palatable.
The loan amounts available are between £1-£5,000 and can be repayable between 1 and 5 years. The loan can be used for any purpose such as a car or even to pay off expensive pay-day loans.
Full and final IVA
More and more young people are finding themselves deep in debt and, in many instances, they will be trapped for the forseeable future unless they can pay off their debts. This is where the bank of mum and dad can really help out.
- For example; a child runs up £40K of debts and can’t make ends meet. They have not been making payments on loans and credit cards for many months but they are in some sort of debt management plan. The parent can help to clear the debts by offering a one-off lump sum e.g. £15K, as an alternative to the child going bankrupt. In most instances this would be acceptable and the child can get their life back on track as this would be a full and final IVA funded by the bank of mum and dad.
I am sure there are many more products provided by the bank of mum and dad but, I think the four above are the most actively used by appreciative and financially restricted young adults.