House prices may have fallen in recent years but property still remains stubbornly out of reach for many first time buyers. This can be evidenced with the steadily rising age of first time buyers, meaning more and more children are staying at home longer before fleeing the nest. Back in the “good old days” it was possible to take out a mortgage on a property paying a deposit of 5-10%. However, the credit crunch has put paid to that, resulting in a tightening of lending policy with most mortgage lenders now insisting on significantly larger deposits, typically around 25%. What was once achievable, it is now becoming increasingly difficult for individuals to take their first step onto the housing ladder.
As a consequence we are seeing more and more parents helping out their children by paying part or all of the deposit on a house, sometimes even remortgaging their own home to raise the cash needed. Whilst using your cash in this way appears to be a good idea, great care needs to be taken before parting with hard earned cash. With divorce rates at their current levels, it is not un-common for couples to separate and go their separate ways. We have seen instances where parents have helped their children out financially with the house purchase, only to find some years later their child is divorcing and their son or daughter-in-law walking off with half the money they had given to their child towards the house.
To protect any gifts or loans parents should consider seeking legal advice. A declaration of trust is one answer reflecting the intentions of the ownership of the property or another answer is for a legal charge to record a loan, both of these solutions can be registered at the land registry. This way, in the event of the couple separating any gifts or loans made to a child can be protected as the parent’s interests would be noted by a trust or on the land registry. This would ensure what you give to your child remains with your child and would not be halved by a son or daughter-in-law on separation.
As with all things in life seeking professional advice before acting is key.