As property prices continue to soar in the West Country, young people are increasingly relying on the ‘Bank of Mum and Dad’ to help buy their first home – so much so that parents are now the ninth biggest lender in the country predicted to lend more than £6.5 billion this year.
Recent research has shown that the south west will see the largest average parental contribution at £30k – higher even than that made by parents in London – a need driven by the chasm between property prices and average incomes in this region.
This growing trend means it is really important that parents, and their children, think carefully about the legal arrangements for this contribution: is it a gift; or is it a loan to be repaid in the future? If a loan, what are the repayment terms and does interest apply?
Parents need to be especially careful if their child is buying the house with a partner or spouse. Is the gift or loan made to them both, or just their child? If the latter, then they need to make sure that the money remains with the child and that the partner or spouse cannot claim any share of that money in the future.
When families are involved, it is easy to rely on trust and common understandings. Where so much money is involved, that isn’t good enough with a need for everyone, both parents and child, to have legal certainty about what the arrangements are. No bank would lend without this clear legal protection – parents should learn to think in the same way to protect not just themselves, but also their child’s investment in the property.
Ensuring complete legal protection is easy to achieve and can tie in with the conveyancing process. Families need to approach this commercially to make sure that there is clarity and certainty for everyone.
About the author: Foot Anstey associate Jill Bruce is a member of the high value matrimonial team and specialises in family and children matters, ancillary relief and dealing with divorce