So what is the solution? Well most of us will be all too familiar with the “bank of mum and dad”. Put simply, parents and often grandparents are gifting or loaning their children the money needed to get them on the property ladder. Whilst this seems the most logical answer, it does need some thought.
The first step is deciding whether you are providing a gift or a loan? With a gift you have to be mindful that there is no expectation of it being repaid, no matter the circumstances. Is this what you intend and want?
Whilst you may be happy for your son or daughter to benefit from your gift would you be happy if that gift was put in jeopardy? The answer is more than likely going to be ‘no’ as you understandably will want to protect your hard earned capital.
You need to consider how they are buying the property, are they buying the property alone? If not then consideration needs to be given to protecting that gift from relationships both current, future and on relationship breakdown too.
- If they are buying jointly with a partner or even a friend are they both contributing equally to the purchase? If not, they need to consider a Declaration of Trust to protect their unequal share.
- However, if they are purchasing the property alone they need to know what happens if a lodger, friend or partner wants to move in. They may need to consider a tenancy agreement to make it clear that the third party is not acquiring an interest in their home.
- If their partner is moving in they may also want to consider a cohabitation agreement to set out the responsibilities and rights of each party. This will make it clear who owns what (not just the house) but also sets the expectations for meeting the costs of living and importantly what would happen if the relationship were to end.
Unfortunately it doesn’t end there. Thought also has to be given to that relationship moving forward. Does the agreement provide properly for the advent of children, if not it might need revisiting? Otherwise if they decide to remarry any such agreement is not binding on a court if they were to divorce so they need to think about a pre-nuptial or post-nuptial agreement to deal with their interest.
Otherwise you need to consider if you should update your will? Is your son or daughter getting an early inheritance and do you need to account for this in your will to make it fair for any other children?
It’s a bit of a minefield helping family onto the property ladder but protecting family assets is incredibly important. The first step really is to take advice from a multi-disciplined solicitor who can address not only the property issues, but also the aspects of family law and the skills to handle Wills and Trusts in order to fully understand your options before you act.