Protecting the Bank of Mum and Dad

In the current economic climate it is difficult for young people to take the first step on the property ladder.  It is estimated that the number of 20 – 24 year olds living at home in 2017 increased to 25.91%.

It is understandable that parents, who are in a position to do so, want to help their children by lending or giving their child a contribution towards the purchase of a property. A recent Legal & General report estimated that parents were involved in more than 25% of all UK property transactions.

Before lending or gifting money towards an adult child’s property purchase, parents should seek their own specialist legal advice to ensure their contribution is properly protected in the future. Parents will need to consider what will happen if, for example, their child enters into a cohabiting relationship or marriage and the implications for their contribution if the child’s relationship subsequently breaks down.

Parents lending money should  record any loan in a formal loan agreement, which is drawn up by a solicitor, to prevent it being treated a “soft loan”, which may not be considered by a Judge as repayable in the event of a later dispute.

If the child enters into a cohabiting relationship the parents and child will want to consider whether to ask the partner to sign a licence to occupy the property to prevent the partner becoming legally entitled to any interest in the property. The child will also need to consider entering into a Cohabitation Agreement to record the contributions made by the child and the partner to the home and what should happen to the property/net proceeds of its sale should a dispute arise in the future.

If the child marries, they should consider a Pre-Nuptial Agreement to record the contributions and intentions with regard to a financial settlement should the marriage break down.

These agreements are bespoke legal documents and can be tailored to the specific circumstances of each case. It can be recorded in such agreements that the parent’s contribution is to be considered either as a formal loan or as a gift only to their child.

Although such agreements are not automatically binding on the courts, provided the child and their partner fully disclose their financial positions to each other, have had the opportunity of seeking legal advice and the terms of the Agreement (which is properly drafted by a lawyer) do not prejudice the other party’s needs or the needs of any children of the family, a Judge is likely to give such an Agreement weight in the event of any dispute.

Although parents may want to assist an adult child in the purchase of a property, before doing so, they need to consider how best to protect this contribution in the future. If they fail to do so, their child may lose the benefit of this money if their cohabiting relationship or marriage breaks down.

Jayne Turner is a Partner in the Family team in Taunton. She is a Resolution Accredited Specialist in Complex Financial Remedies and Pensions on Divorce, an Advanced Member of the Law Society’s Family Law Panel and trained and experienced collaborative lawyer. Jayne is described in the Legal 500 2018 directory as “sensible, client focused and knowledgeable”. For any more information please contact Jayne on

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