When the bank of mum and dad fails

5 July 2010

Properties in four out of 10 areas in the UK are now reported to be affordable for first-time buyers.

But as nervousness about lending remains, the LTV ratio is lower than in the past, which makes finding a deposit almost impossible for young people desperate to get on the housing ladder.

That’s why many are turning to the bank of mum and dad. This is brilliant for providing the boost required to fulfil their dream, but what happens on a monthly basis?

There are things buyers can cut back on to make ends meet but moving into your first property can be a financial shock to the system, with bills coming at you from all angles.

So where does that leave individuals when it comes to protecting their ability to fund the property they’ve fought so hard to buy?

The truth is that first-time buyers are unlikely to have the funds to pay for the cover they need. But that shouldn’t put them off protecting themselves, even if the amount they can afford seems trivial compared with their financial commitments.

Imagine the thrill of buying a first home and then losing a loved one on whom you were financially dependent, or becoming ill and unable to work.

Although a £20,000 payout will not cover the outstanding mortgage and bills it will ease the buyer’s burden until they can get back on their feet. It’s inevitable that people should turn to their parents, but in some situations the bank of mum and dad won’t be able to pay out.

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