Issues to consider when supplying your children with money to buy a property
The BBC has recently reported that the “bank of Mum and Dad” lends approximately £5bn per year to help their children get onto the property ladder in the UK. This claim is based on data collated by the Legal and General who estimate that 25% of all UK mortgage transactions are financed by a buyers parents giving their child, on average, approximate £17,500.00 (http://www.bbc.co.uk/news/business-36181318)
This seems logical in today’s society where house prices are increasing faster than wages, and first time buyers are struggling to buy their first home and are faced with paying high rents (thus preventing them from saving any form of deposit) or staying at home with their parents.
However, a difficulty can often arise where parents have loaned their child and that child’s partner money to buy a property and that relationship then fails; either through separation or divorce. Disputes can often arise in situations like this especially when the parents ask for their money back or wish for the money they have given to stay with their offspring rather than the partner of their child.
Cohabitation Agreements
Where a parent is giving money to a child who is in a cohabiting relationship i.e. living with their partner but unmarried, that child may wish to consider entering into a Cohabitation Agreement and stipulating what would happen to their parents money in the unfortunate case that their relationship failed and a separation arose. Whilst a Cohabitation Agreement is not legally binding, it is a useful mechanism for recording the intentions of cohabitants and can be used as persuasive evidence in the case of a dispute. For example, Cohabitant A and Cohabitant B could agree that in the case of a separation, any money given to them by Cohabitant A’s parents are to be repaid in full (or with interest if agreed) therefore returning the money back to Mum and Dad and allowing any remaining equity to be divided between them.
Pre & Post Nuptial Agreements
If a parent is giving money to a child who is getting married or is married, that child may wish to think about a Pre-Nuptial (before the marriage) or Post-Nuptial Agreement (after the marriage) to set out what would happen to their parents money if the marriage sadly ended in divorce. At present, these types of agreements are not legally binding in England and Wales although the law has shown a change in recent years, and has started to uphold these agreements where the parties can show that they have been entered into agreement without pressure or duress and the correct process has been followed. They can therefore act as a way of detailing the parties’ intentions and setting out what will happen to this money in the case of a divorce. For example, Spouse C and Spouse D may agree that money given to them by Spouse C’s parents will remain with Spouse C in the case of a divorce and Spouse D will have no claim to it.
If you require any advice in relation to any issues pertaining to this topic or seek assistance in respect of any family law matters, please contact Lorna Barry on 01442 872311 or via email at [email protected] or Kirsty Bowers on 01582 514302 or via email at [email protected]