The same goes for the Bank of Grandma and Grandad. Thousands are helping loved ones beat today’s sky-high property prices and get on the housing ladder, but their generosity could backfire.
The Bank of Mum & Dad now funds almost half of first-time buyers, handing over £10 billion a year in total, according to Savills.
Typically, they help out by contributing tens of thousands of pounds towards a property deposit, but that can be a dangerous thing to do.
Increasingly, they need that money in later life, to pay their food and electricity bills as prices rocket.
The problem is that once they have given money away, they can’t get it back. It is sunk into bricks and mortar. They are making retirement even tougher for themselves.
As the cost of living rockets, one in four parents or grandparents say inflation makes it impossible to gift young buyers the sums required, according to lender Generation Home.
So they’re taking another route instead. This one does not involve handing over tens of thousands of pounds upfront as a deposit.
Unfortunately, it’s even riskier.
Nearly half of parents say they are willing to co-sign their child’s mortgage and be responsible for loan repayments alongside them.
This is called being a mortgage guarantor and can help loved ones boost their financial credibility with lenders and get a cheaper home loan.
There are different ways of helping out. One option is to offset your savings against the debt, so they effectively work as a deposit.
You have to tie your savings up for a number of years but get a decent interest rate and afterwards, you should get your savings back.
However, if your child or grandchild defaults on their repayments, the lender will raid your savings.
You could lose some of the money you put up. Or all of it.
If you don’t have savings but own your home and have spare equity, you could use that as security instead.
You will typically be named on the mortgage but won’t have your name on the property title deeds. Either way, the risk is the same.
You could lose your home.
If the person you are helping can’t keep up their monthly mortgage payments or defaults, you will have to step in.
If you cannot afford that, the lender will repossess and sell the property to get its money back.
You will then be on the hook to plug any gap between the sale price and outstanding mortgage. If you don’t have cash to hand, you could be forced to sell your home to raise the funds.
Too many don’t realise the danger.
Remember that any missed payments are likely to show up on your credit file, making it harder to get finance in future.
Even where payments are maintained, the mortgage will be seen as a liability so it could affect your ability to borrow in future.
As house prices slow and interest rates rise, lenders are increasingly calling on mortgage guarantors to repay defaulted loans, tax advisory firm Mazars has warned.
Guarantors are often shocked to find themselves being chased.
Many never understood the responsibilities involved, or felt pressured into helping a loved one against their better judgement.
That does not mean you should refuse to help, just make sure you know what guarantees you are offering, and be sure you can afford them.
Just like any other bank.