Bank of mum and dad at risk as young homeowners fail to protect themselves against future fall outs

Unmarried couples buying their first home together – often with a hefty deposit from the bank of mum and dad – are failing to protect their interest in the property and risk losing the family investment should their relationship break down, writes Claudia Gilham from Mills & Reeve.

With house prices out of reach for many young couples and banks requiring high deposits, the bank of mum and dad is busier than ever! Recent figures from the Centre for Economics and Business Research found that parents will stump up £6.5 billion to help their kids buy property this year – accounting for 26 per cent of all new home purchases. 

It is an exciting time for young couples who are embarking on buying their first home together. Naturally, they think the relationship will never end. Sadly however they often do and this is where the problems start, particularly for those couples who are not married.

The legal rules governing the distribution of property after the breakdown of a relationship are very different for married and unmarried couples. For unmarried couples, under the current law, it is possible that, following the breakdown of their relationship, a partner who contributed significantly more than the other partner in terms of a deposit or mortgage payments may be forced to hand over 50 per cent of the property to the other partner depending on how they own it.

We recently surveyed more than 1,000 cohabiting couples across the UK. The research found that only 37 per cent of  25-34 year olds contributed equal amounts to the deposit for their home, while just over half (58 per cent) contributed equally to the monthly mortgage payments.

It is stark reading particularly as many couples rely on the bank of mum and dad to fund the deposit.

So what can you do to encourage your offspring to protect the family investment? Firstly, look at different ownership structures of the property and take good legal advice. 

The most common ownership structure is as  joint tenants. Under joint tenancy rules, the proceeds of the property will be divided equally upon sale regardless of how much each party contributed. Also if one of the joint tenants were to die, the property would automatically pass to the other even if their Will stated otherwise.

Around half (54 per cent) of the 25-34 year olds surveyed bought their home as joint tenants, yet one third (33 per cent) were unaware of the joint tenancy rules.

The alternative way to own a property jointly is as ‘tenants in common’ where each owns a share of the equity. This can either be half, or a defined percentage. On sale, each receives their respective share of the proceeds. Also upon death the property will pass to the beneficiaries of a Will.

Despite the obvious benefits for those contributing unequal amounts, only 15 per cent of young cohabitees bought their property as tenants in common.

The survey also revealed a lack of professional advice taken by young cohabitees - only 46 per cent received advice on different ownership options – and also a lack of awareness and take up of other wealth protection measures such as cohabitation agreements.

Unlike pre-nuptial agreements cohabitation agreements are legally binding and can provide certainty in property division upon the breakdown of a relationship. They can also cover ownership of furniture and belongings and contributions to monthly expenses. Cohabitees can also make use of the agreements even if only one of them owns the property (making clear their partner has no claims) and to regulate who pays for what in the house. 

Despite the obvious benefits, seventy per cent of young cohabitees had never heard of the agreements

As the law governing cohabitation can produce very unfair results, couples embarking on buying property together or living together need to look at different ownership structures and wealth protection measures to protect their investment and also the hard-earned cash of mum and dad!

Kris Arpon