The rise in property prices has put home ownership increasingly out of the reach of many.  Prospective home buyers often use ‘the bank of mum and dad’ to take that first step on the ladder. 

Open discussion and agreements at the outset will avoid conflict, family heartache and expensive legal fees down the line.  So, as a parent, how do you protect your investment?

Firstly, be clear whether it is a ‘loan’ or a ‘gift’.  If it is a loan, what are the conditions for repayment?  It is important to bear in mind the consequences of not ‘protecting’ the loan in the event of, for example, a subsequent divorce. Protection of the loan in the form of a legal charge reduces the risk.  However, when buying with a mortgage, the mortgage lender may be reluctant to offer if the purchase is reliant on another legal charge as well. 

Please bear in mind that both a loan and a gift may have tax implications in respect of inheritance tax and/or stamp duty.  A loan will form part of the estate of a parent on death and will therefore be subject to tax in the usual way.  If the money is a gift, you may want to clarify who is the receiver of the gift; the couple or your child.  For example, should the couple go their separate ways and there is enough equity in the house sale to cover the gift, can one party take 100% of that amount or, given that they were given the gift as a couple, should the equity be split 50/50?

Take some advice with your children and make an open, informed decision together. 

To put the correct agreements in place, you may require independent legal advice, to ensure that your interests do not conflict with your child’s.

Article written and contributed by: Heidi Vanlangenaeker – hvanlangenaeker@prettys.co.uk

DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances, and is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered in this article, please speak to Prettys directly.