With adult children increasingly reliant on the so-called Bank of Mum and Dad, residential property specialist Victoria Cranwell explains how parents can protect loaned or gifted house deposit monies.
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Bank of Mum and Dad
With ever-rising house prices, first-time buyers increasingly struggle to take that first step on the property ladder. The major obstacle is a deposit. In 2021, on average, first-time buyers in the UK had to find a whopping £53,935. It’s not surprising then that more than half of those aged under 35 rely to a greater or lesser extent on the Bank of Mum and Dad – possibly helped along by the Bank of Granny and Grandad. Indeed, an average family contribution towards a deposit is currently around £19,000, with more than one in five of those needing assistance receiving more than £30,000.
But as a contributing parent, what happens if your child separates from a partner they are buying the property with? And even if currently single, there’s always a possibility of a partner moving in later. How can you protect your contribution?
Before considering your position, where does your son or daughter stand? Importantly, they need to know where they stand legally with the property on relationship breakdown. Whether married, in a civil partnership or single, they can take steps now that may help protect them should they separate from a current or future partner. Understandably, a couple may be reluctant to discuss the possible end of their relationship. However, taking such steps is not unromantic but rather pragmatic. Indeed, couples often find reassurance in removing much of the uncertainty. So, the following information may be helpful for:
See also: TOLATA claims
What is a Declaration of Trust?
When contributing to your child’s deposit, their conveyancing solicitor must know you wish to protect your money. And the most common method of achieving this is through a declaration of trust, a mechanism for dictating how the property will be owned and treated. The declaration of trust may state that one party owns a greater share of the property to reflect their higher contribution. Or perhaps it will stipulate that the deposit monies will be returned to the relevant party if the property is sold before the division of the balance of sale proceeds.
It’s crucial that a declaration of trust is drawn up properly by a solicitor and that all parties receive appropriate legal advice.
Another mechanism for protecting deposit monies is through a formal loan agreement. In many cases, such agreements stipulate that no interest is payable. And there may be no expectation at all of repayment. But in the event of relationship breakdown, the deposit loan should be protected from any financial settlement.
As with a declaration of trust, a solicitor drawing up a loan agreement ensures you are protected.