How can parents protect their money when helping children onto the property ladder?

Year Published: 2015

An increasing number of first-time buyers are turning to their parents for help with a deposit when buying their first property. In a recent case, a mother was providing the £20,000 deposit for her daughter in order to help her and her boyfriend onto the property ladder with their first house.

While many are happy to help family members onto the property ladder if they are able to, there is a danger that hard-earned savings could be lost if relationships break down. However, there is a way you can protect your deposit should this happen.

You first of all need to decide whether it is a loan to your child (which needs to be documented in a loan agreement) or if you are going to share in any ‘profit’ in the property.

Your child and their partner would also need to enter into what is known as a Declaration of Trust in order to protect your deposit. It will protect your interests without you having to be named on the mortgage deed itself. The Declaration of Trust states the percentage contribution made by the beneficiaries and the percentage of proceeds of sale due to them. It will also cover:

  • The proportions of the mortgage each partner will pay;
  • Who pays for utilities and other outgoings;
  • The provision for buying each other out;
  • A timescale for the sale of the property;
  • An agreed method of valuing the property;
  • Provision for children, if any.
Helen Kelly, Partner and Head of Trusts at SAS Daniels Stockport

Helen Kelly, Partner

A Declaration of Trust can be as simple or complicated as is required and as circumstances change it can be re-written. The declaration should be part of the conveyancing process.

To avoid complications, the property should be held as ‘tenants in common’ rather than ‘joint tenants’, which would enable your child and their partner to hold specific shares in the property.

To strengthen your child’s position, all the household running expenses, including the mortgage payments, should be paid from a joint account. This would demonstrate that your child and their partner both contributed to these costs and help prevent their partner from asserting that they paid all the outgoings. Otherwise your child’s partner may be entitled to more than half the proceeds.

After buying a property, the next logical step is for your child to make a Will, especially if they hold the property as tenants in common with their partner in order to outline who they wish to inherit their share of the property when they die.

For advice on how to set up a Declaration of Trust or any other advice regarding Trusts, please contact Helen Kelly in our Trusts team on 0161 475 7685.

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