Parents helping their children on to the property ladder are increasingly ending up in court.
A recent article in The Times highlighted a growing trend of parents taking their children court to get money back after lending them money to buy a home.
Property lawyers say that parents who lend their children money to help them buy a home, can often find it very difficult to get their money back. If a situation becomes tenuous with the parent claiming the money was made as a loan and the child believes it was a gift, and if the case goes to court, the onus is on the parent to prove that the money was made indeed as a loan. Many agreements between a parent and their child/children are verbal and not always thought through, so finding the evidence to prove such agreement is challenging at best.
If there is not anything in writing, Mum and Dad can not only lose the loan but thousands of pounds in fees and expenses in proving their intentions. The “Bank of Mum and Dad” is the tenth biggest lender. It will lend an estimated £6.3 billion pounds this year alone, with the average loan of £24,100.00
One set of parents were almost left homeless after they sold their property and put the proceeds into a new home, which they bought with their two sons. The parents lived in the basement and when the sons sold the property, one of them had viewed the parents contributions as a gift. The parents had not placed any restrictions on the sons selling the property whilst they remained living there and then when the sons sold, mum and dad had to leave! The parents then had to go to court to argue that they had an interest in the property. However, they were unable to prove their claim and the property was split 50-50 between the two sons and no money going to the parents. The parents had not put in a declaration of trust which was their downfall. One can only hope that both or at least one of the sons, gave their mum and dad their money back!
How to protect yourself
Obtain legal advice before helping a child with a property purchase
- If the intention is to “lend” the money, draw up a formal Loan Agreement, stating the amount of repayments, term, and level of any interest
- If the intention is to “invest” in the property, have a Declaration of Trust drawn up by your Solicitors and ensure that each party has independent legal advice before signing
- A Cohabitation Agreement can stipulate the share of any assets acquired by an unmarried couple. A Lawyer can advice on this
- Some Lenders, such as Natwest, accept repayable gift deposits
Other problematic scenarios include a parent dying after giving money to a child and a sibling seeking to have it factored in when it comes to splitting an estate, or parents divorcing after loaning money to a child and one of them taking legal action to have their share returned. If the parents lose the case, they do not have to pay.
For advice on family matters please call our office today for expert guidance