Parents are often conscious of the difficulties their children face in getting onto the property ladder. As a result many parents give their children a helping hand by loaning or giving them money towards the purchase of a property. Samantha Jago, family law solicitor at rhw solicitors in Surrey, looks at some the issues that can need to be considered if you decide to go down this route:
Giving your child money towards a property
Anyone wishing to assist their child in purchasing a property should give consideration to the following:
• Is the money to be a loan or a gift?
• How would you feel if your child cohabited and the relationship came to an end and the ex-partner sought to claim an interest in the monies you had gifted your child?
• How would you feel if you fell out with your child and they then reneged on your verbal agreement that the money would be repaid?
If the money is to be a gift it is best to have it formally recorded that you do not require reimbursement at any stage. If you were to die within 7 years of making the gift inheritance tax might need to be paid on it.
Lending your child money for a property
If the money is to be a loan then you should consider how you want that loan protected and whether you require a return on the money. The following should be considered:
• Do you require a Charge to be registered against the property? This is similar to a mortgage in that you will be repaid out of the sale proceeds. Often the loan will be a second Charge to any mortgage and might require the mortgage lender’s permission.
• Is interest payable on the loan?
• How is the sum to be repaid i.e. in instalments?
If your child asks you to stand as guarantor for their mortgage again legal advice should be sought. Would you be willing to cover the mortgage if your child defaulted on payments or would you want some sort of protection, say an interest in the property, in the event that you had to cover the mortgage?
It might be that you wish to hold the property in joint names with your child and may wish to enter into a Declaration of Trust that formally records in what percentages the title is held.
Do you intend to live with your child at the property?
If you want to live with your child at the property, consideration should be given as to what would happen if your circumstances or theirs changed. What would happen if they wanted to buy out your interest, move a partner in, or even sell the property? What would happen if your child died and their partner or spouse inherited your investment when this was never intended?
Many parents believe that no protection is required and they will make their own private family arrangement. Too often, however, we advise on the fall-out of a ‘family arrangement’ that has gone wrong. When entering into a ‘family arrangement’ people never consider or indeed like to consider the possibility of future problems but they can be a reality. By taking advice and having a clear, well drafted document recording the agreement reached this provides clarity and minimises the opportunity for dispute.