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The Bank of Mum and Dad

Author: Richard Middlehurst

Recent research by Legal and General revealed that it’s ‘the bank of mum and dad’ that is the 10 biggest UK mortgage lender. As house prices rise, particularly in the South East, it means that more and more first and second time buyers are relying on their parents, either to provide a substantial deposit or to assist in the payment of Stamp Duty.

In many cases, parents are lending significant amounts of money. At the same time, it is estimated that there is over £400 billion pounds worth of inheritance much of which will be put to helping new owners onto the housing market.

Making a provision of a life time gift is a well established inheritance tax piece of advice. However for those parents who are helping with deposits, bridging the gap between mortgage raising capacity and purchase cost, beware. Whilst we all do what we can for our children, assistance at the time of purchasing a property can go sour. Recently I had a case where parents had lent £70,000 into their daughter’s property. She subsequently met someone, got married and the parents ‘wanted their money back’. The parents didn’t see the need to draw up any documentation or legal charge in their favour as either they felt embarrassed to but more likely because it was ‘within the family’ so what could possibly go wrong? Unfortunately, in the absence of any documentation or legal charge in their favour, unless they were prepared to become directly involved in the ensuing divorce proceedings, they simply had to watch as their soon to be ex-son in law benefitted from their investment. 

Increasingly parents who are investing in property for sons and daughters are gradually becoming aware that it is better to have some form of an agreement/arrangement in place rather than nothing. This might even run to a Cohabitation Agreement, or in some cases a Pre-Nuptial Agreement. Another area where the ‘bank of mum and dad’ is helping, is with the buy to let market. First time buyers are increasingly unable to afford even the simplest of starter flats. Parents are stepping in and in some cases letting their property to their children. It is important in these cases to have tenancy agreements which keep the transactions at arms length to ensure that any partners do not acquire any long term rights of occupation.

As the whole issue of housing and the disparity between those who have and those who have not becomes a national issue, those thinking of helping their children onto the housing ladder should consider carefully how to protect their assistance in order to ensure that the purpose of any advance is fulfilled without anyone else benefitting. 

For further information on drawing up family arrangements and property, please contact Richard Middlehurst either by email r.middlehurst@downslaw.co.uk or by telephone on 01483 411530 or another member of the family department.

Posted on 25/10/2017 by Pam Bowring

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