Coping with debt when you’re planning to start a family
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If you’ve borrowed from your parents to buy your home but you can’t pay the money back, there are ways to deal with the problem.
Parents up and down the country are set to lend a massive £5bn to their children this year to help them get on the property ladder, according to Legal & General’s new survey. Many – or even most - first-time buyers rely on family lending to help towards the deposit, so if you’ve borrowed from your parents to afford a house you’re certainly not alone.
But what happens if you borrowed money from your parents to buy your house with every intention of paying it back, but now realise you can’t afford to?
In this blog, we’re going to explore the best ways to deal with family debts and get back on a more secure financial footing.
Can you come to an arrangement with your parents?
Depending on how things stand with your parents of course, it might be possible for you to sort the situation out directly with them.
In some cases when you’re struggling to pay back everything you owe, a lender can give you some time to work things out by giving you a payment holiday. Is it possible for your parents to do the same?
Alternatively, could you suggest that you lower your payments, if you can afford to give your parents something back each month but not that amount they are expecting. This would mean that they’d get all their money back – just over a longer period than you’d originally agreed.
Make sure you put your mortgage payments first
Whatever kind of arrangement you come to with your parents, make sure your mortgage payment remains a priority. You should never miss a payment to your mortgage provider so that you can pay your parents back, because falling behind with your mortgage could put your home at risk of repossession.
There are other debts and bills that you should prioritise as well, like your council tax and utilities. For a detailed breakdown of what to put first, have a look at our blog ‘What are priority or and non-priority debts?’.
Your situation may mean that you have to explain to your parents that you won’t be able to pay them back as expected because you’re putting your mortgage payments first. As they lent you the money to buy the house initially, you may find that they’re quite understanding on this front.
Can I include family debts on a debt solution?
If you’ve fallen into financial difficulties – perhaps with loans and credit cards that you can’t keep up the repayments on – as well as family debts, then you’ll be pleased to know that it’s sometimes possible to include these on a debt solution. There are a range of different debt solutions available – which one is right depends on your personal circumstances.
A Debt Management Plan (DMP), for example, allows you to make one, affordable monthly payment towards your unsecured debts. You can include family debts on this kind of plan. With a Debt Management Plan you pay back everything you owe just a lower rate. So it would take longer for you to pay the debt back overall, but you would have that extra breathing space each month.
When you start a debt solution like a Debt Management Plan, your monthly payment is very carefully worked out so that you can afford your other essential bills. So even though you can’t include your mortgage on the DMP, you should find that the lower payments towards your unsecured debts help you afford your mortgage and any other secured debts you have.
There are some downsides to debt solutions, including your credit history being negatively affected as it will show that you have not kept to the original terms of your credit agreements. This means you may have to pay a higher rate of interest or that you find it harder getting approved for credit if you want to borrow in the future.
To find out whether or not a debt solution like a DMP is best for you, you should get expert advice. You can use one of the options on the left to get in touch with our experts, or there’s lots of advice available from The Money Advice Service.
Is it ever a good idea to borrow from parents?
It is sometimes a good idea to borrow from your parents if you need to - as we’ve seen from the trends in lending, it can be the only way some young people can afford a mortgage in the first place.
If you’re thinking of borrowing from your parents, or any other family member, there are still a few things you need to discuss first. Our blog should help you figure everything out – ‘Can borrowing from friends and family work?‘.
Remember, there is always a way out of problem debt, whoever you owe money to. Make sure you get the professional advice you need so you know the best way forward.
by Christine WalshBack to blog home