A note of caution for parents helping their children onto the property ladder!
For first time buyers in today's market, getting onto the property ladder is inherently difficult. Young people are saving what they can, whilst at the same time watching property prices creep out of price range.
It's no wonder that parents will want to step in and fill the gap, and so the bank of mum and dad often comes to the rescue.
However, as we will explain, the best of intentions can sometimes come back to bite some families and so there are wise considerations to make prior to loaning or gifting any money in order to help purchase a property.
Future or present relationships
By gifting or loaning money the family member may be inadvertently setting up a financial transaction they may later regret. However, without setting out the terms of your investment within the property, your child's partner could later state a beneficial interest within the property.
Consequently, a partner may litigate with an interest in obtaining part or all of the properties value.
Deeds of Trust
It's crucial to consider forming what is referred to as a Deed of Trust.This is a document that will clearly show a person(s) contribution made towards the purchase of a property.
If such a document was in place, any dispute your child may have with an ex-partner over the property would be substantially strengthened in that you as the parent could prove your investment within the property.
This would therefore make it easier to prove the existence of the loan and also to pursue litigation so that you could seek to redeem the sum.
Gifting money can cause problems
When helping our children out financially with the purchase of a home, it can be tempting to avoid making the offer overly formal. This is understandable given that the individual is a trusted family member and so it is often based on mutual trust. Therefore, parents deem a verbal agreement as sufficient.
However, family circumstances do change and in the event your child goes through a separation, then their former partner could come between the agreements you have made verbally with your child.In turn, such agreements should be more formal and recorded.
Gifted funds are treated differently, this means they will have lower legal standing than if the money was given as a loan. Therefore, whether to give the money as a gift or a loan should be carefully considered prior to the transaction.
It takes a long time to build it back up!
Whilst upsetting, it is fairly common for some couples to save for a long time to purchase a first property only for them to suffer a marital or relationship breakdown, to then have to start off in a more financially depleted situation.
Prenuptial and Postnuptial agreements
A common term mentioned in celebrity marriages, however it is worth considering whether such agreements may be beneficial, irrespective of the wealth in the marriage. Such agreements can help the couple set out what should happen to any marital assets if you were to split.
More often than not, both partners are much more likely to be fair and reasonably about what should happen whilst still together. If a relationship was to breakdown however, this can be very different and partners may be less willing to cooperate.
Cohabitation agreements
With less people tying the knot these days, it may be useful to consider a cohabitation agreement. However, what happens during a divorce is far more defined and clearer than if you are simply cohabiting as there are less clarity for unmarried couples within the law.
Therefore it's worth considering a cohabitation agreement, in order to state what you want to happen if the relationship does fail.
Make your position as clear as possible
Our best advice is if you are a parent and you are helping your child onto the property ladder that you should make the investment as clear as possible.
Offering money but not connecting this with a formal agreement could be a decision that comes back to bite you.
We are expert family lawyers within Cardiff, contact us for more advice.
