THE BANK OF MUM AND DAD
With the property market in turmoil, many buyers, particularly first time buyers, are turning to their family for financial assistance. Whilst property prices have fallen, or remained fairly static, over the last few years so have salaries and banks are increasingly concerned about lending large sums of money. This leaves many people finding it hard to raise sufficient funds to get on the property ladder. One particular problem is raising the cash deposit needed to purchase a property as the banks no longer offer 95% loan to value mortgages.* First time buyers are often left with no option, but to ask their parents to lend them this cash deposit and often parents readily agree. Unfortunately, this is sometimes done in a very casual fashion with no proper consideration of if, and when, those monies should be repaid. More importantly, if the child purchases the property jointly with a partner, who repays the loan if they split up and how much do the parents get back if the property has to be sold ? If there is no formal documentation about the loan, the property will usually be registered with the Land Registry as being held legally in the joint names of the child and their partner. There will be no mention of the parents, or their monies. This means those parents would not necessarily be aware if the child and their partner decided to sell the house, or even remortgage it for a higher sum. This puts the parents in a precarious position. Further, if the child and their partner separate, there may well be a presumption that the net proceeds should be divided equally between them. The child is then left with the sole burden of repaying the “loan” to his or her parents if their ex-partner maintains it was a gift. Matters become much clearer if the intention of everyone at the time the property is purchased is set out for everyone to see. The easiest and safest way to do this is for all the relevant parties to enter into a declaration of trust. This does not need to be a long document, or cost a lot of money. It should simply clarify the main points: • Whose name(s) will be on the land registry records as the legal owner(s)? • Should there be a restriction entered on the Land Registry records to protect any other party who has an interest in the property? • Set out who contributed what sums to the purchase price of the property and specifically state whether it is a loan or gift, and whether any interest is payable • Clarify how the net sale proceeds are to be divided between everyone concerned if the property is sold. This simple document can save months of distress and thousands of pounds in legal costs as if there is a dispute, sometimes the only way to resolve the situation is an application to the court. If you have invested money into your child’s property, or are about to do so , please contact our PANAY VASSILIOU on 01992 463727 or email him at panay.vassiliou@curwens.co.uk Curwens LLP is your local firm of solicitors offering most areas of legal advice – based in Hoddesdon, Enfield and Cheshunt. www.curwens.co.uk * The Government has just launched “Newbuy” – a scheme to help more people buy their own house or flat. You can now access up to 95% loan to value mortgages if you are purchasing a new build property in England, constructed by a builder who is in the scheme, for less than £500,000 to be used as your main home.
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