Residential property specialist, Victoria Cranwell, explains the steps parents can take to protect house deposit monies loaned or gifted to children.
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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, you may be concerned about what will happen if your child separates from a partner they are buying the property with. And even if they are currently single, there’s always a possibility of a partner moving in at a later date. How can your contribution be protected?
Before moving on to consider your position, it’s also important for your son or daughter to know where they stand legally with the property on relationship breakdown. Whether they are married, in a civil partnership or single, they can take steps now that may help to 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, and couples say they find reassurance in removing much of the uncertainty. The following information may be helpful for:
What is a Declaration of Trust?
If you are contributing to your child’s deposit, it’s essential their conveyancing solicitor is made aware that you wish to protect your money in the event of relationship breakdown.
The most common method of protecting gifted deposit monies is for your child to enter into a declaration of trust, which will dictate 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 in the event of the property being sold, the deposit monies will be returned to the relevant party before the balance of sale proceeds are divided.
It’s crucial that a declaration of trust is drawn up properly by a solicitor and that all parties receive appropriate legal advice.
Deposit monies can also be protected using a formal loan agreement. In many cases, such agreements stipulate that no interest is payable, and there may be no expectation at all of the loan ever being repaid. 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 should draw up a loan agreement to ensure you are protected.