Family law solicitor, Carol Toulson, discusses how parents can protect their deposit when helping children to buy a home.
The Bank of Mum and Dad, as it has been called, has now become one of the country’s largest mortgage lenders, providing assistance with 29% of all mortgages, according to Legal & General. The average amount being lent by parents and grandparents to assist with raising the necessary deposit is expected to reach over £21,000 in 2017.
But how can parents protect this money. What if your son, daughter or grandchild separate from the partner they are buying a home with? What if they buy the property alone but a partner moves in at some point in the future? Would you want this to be divided 50/50?
It is important that if you are putting money in to assist a loved-one with a deposit that the conveyancing solicitor acting for your son, daughter or grandchild is aware of this and knows that you wish to protect it in the event the relationship between your relative and their partner deteriorates.
It is still wise to protect the money you are gifting them if they intend to move a partner into the property. We would recommend a Cohabitation Agreement to make it clear that it is not intended that the party moving in will have a financial interest in the property.
The most common means of protecting a gifted deposit is for the person/s purchasing the property to enter into a Declaration of Trust which can dictate how the property is to be treated. For instance, a Declaration of Trust can provide for one party to own a greater share of the property, in light of the fact they have contributed all, or a greater amount, of the deposit. Alternatively, it can stipulate that should the property be sold, the deposit money is returned to the relevant party before the remaining sale proceeds are divided.
Another means of protecting deposit money is by way of a formal loan agreement. The agreement can stipulate that there is no interest to be paid and it may not even be expected that the loan will actually ever be repaid. In the event that your son, daughter or grandchild separates form their partner, or a future partner, the loan used for the deposit should be protected from any separation settlement.
We would also recommend a Cohabitation Agreement. Your solicitor can assist you in drawing up a contract detailing the terms upon which you and your partner will live in the property. The agreement can deal with who pays for what and what will happen in the event of separation in the future. The more you can agree in advance, the more conflict you can resolve when emotions are running high and the relationship between you is difficult.
If your son or daughter is getting married consider a Pre- Nuptial agreement to protect family gifts. Pre- Nuptial agreements are being drafted more and more frequently and can also protect family businesses or inheritances.
Some young couples are put off the idea of Declaration of Trust or a loan agreement because they are not the romantic ideal. Ultimately, we do not know what the future holds and hopefully any such legal document will not prove necessary ....but in some cases the relatively small costs of such an agreement is the best money ever spent and protects your asset in the future.
It is strongly in the interests of those parents or grandparents who are funding a purchase, that steps are taken to protect that money for their own and the family’s benefit.
For advice on lending money to help with a deposit, call Holmes & Hills Solicitors on 01376 320456 (Essex) or 01787 275275 (Suffolk) and speak with my colleague and divorce solicitor, Rosalyn Kinsley.
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