The bank that likes to say ‘yes’ – but parents need to talk more about the conditions of loans to children.

While informality works well when everyone is on the same page, the reality is that problems can easily arise
- Kath Scanlon
Piggy Bank QuinceMedia.

The ‘Bank of Mum and Dad’ is now the UK’s sixth largest lender helping people to get on the housing ladder. However, research by LSE London for the Family Building Society suggests it operates in a very unbusinesslike way.

The report reveals that many families find it very difficult to talk about money and, because of this, there is often no written record of transactions.

It may not even be clear whether the money involved is a loan or a gift, or if there is any interest to be paid.

Relatively few people think through what would happen if circumstances changed, particularly if a child’s relationship split up or a parent needed care in old age.

Because hardly anyone asks for financial advice, they may not understand the tax implications of giving money.

Kath Scanlon, lead author of the report and Distinguished Policy Fellow at LSE London, said: “When you borrow money from a financial institution, there is a massive regulatory framework which addresses all these issues and many others.

“While informality works well when everyone is on the same page, the reality is that problems can easily arise.”

The report recommends that a simple check list is used to help ensure that parents and children have discussed exactly what they are doing and what everyone’s responsibilities are regarding when, how and if repayments are to be made.  

After talking to its members about their experiences, the Family Building Society has published a guide on how to run the Bank of Mum and Dad.

Professor Christine Whitehead, one of the report’s authors and Professor Emeritus in Housing Economics at LSE, said: “It’s amazing how many of our respondents found it difficult to have a financial conversation with their children, yet the family as a whole needs to be involved if everything is to run smoothly.”

The research involved an online survey of almost 800 customers of the Family Building Society, plus interviews and a focus group.

Read more about report on the LSE London Housing Blog