Bank of Mum and Dad and the family home
In May 2017 statistics were published by insurer Legal and General stating that parents will lend £6.5 billion to their children to help them onto the property ladder in the coming year; an amount similar to that lent by the UK’s ninth-biggest mortgage lender, Yorkshire Building Society. L&G predict that parents of buyers will be involved in 26% of all property transactions and provide deposits for more than 298,000 mortgages.
When a relationship breaks down, one of the main assets a couple have is their home. If one of the couple’s parents gave them some money to help them buy the house in the first place, this can complicate the discussion between the separating couple about what should happen to their house and can also mean that the emotional impact of the separation spreads into the wider family.
To try and avoid this, it is really important to ensure that any so-called “Bank of Mum and Dad” loan is clearly defined. There are three main options for how the money can be given:
- as a gift and the parents are not ever expecting it back; or
- as a loan, repayable with or without interest depending on the specific agreement with the parents; or
- as an agreement whereby the parents acquire an interest in the property. If this option is chosen, there will need to be a discussion about how much of the property they will acquire and how much influence they will have over the running of the house, for example regarding insurance.
Whichever option is chosen, it is important that everyone understands exactly what is being agreed and that the arrangement is appropriately documented at the time the house is bought.
The state of the current law means that the need for clarity on these issues is even more important for couples who are unmarried, so please do take a look at our helpful guide to your rights, including your property rights.