If you’re considering giving your child a helping hand to buy a home, you’re not alone. Statistics show that 45% of twentysomethings who purchased a property last year did so with financial support from the Bank of Mum and Dad (Bomad).* However, just because it’s common practice doesn’t mean it’s without risks.
Before you transfer any funds to help your child buy a home, it’s essential to take heed of a warning recently issued by a law firm regarding the potential pitfalls of informal financial arrangements.
Is it a Gift or a Loan?
Coventry-based Brindley Twist Tafft & James has reported a rise in disputes where parents are attempting to reclaim Bomad funds. The issue often arises when parents provide financial support to their child to buy a home with their spouse. If the relationship subsequently breaks down, the division of matrimonial assets can become complicated.
Generally, in the event of a divorce (and we strongly advise you to seek your own legal advice), gifts tend to be divided equally. This means the soon-to-be ex-spouse may argue that the funds were a gift and are not required to repay half of the Bomad money. Meanwhile, the parents claim that the funds were a loan and should be repaid.
Top Tip: Get It in Writing
The courts typically lean towards considering the funds as a gift—unless there is documentation proving otherwise. So, regardless of what you as a parent might believe is morally fair, an informal agreement made over a Sunday lunch won’t hold much sway in court. If you’re lending your child money and expect it to be repaid in the future, it’s wise to get legal advice and formalise the agreement in writing. You may also want to discuss the possibility of a ‘deed of trust’ with your solicitor.
Planning Ahead for a Smooth Process
These conversations can be uncomfortable, especially if your child’s relationship seems stable. However, addressing the matter upfront and diplomatically can prevent future complications. This way, you can help your child buy a home while protecting everyone’s interests. Hopefully, you’ll never find yourself in a dispute, but planning ahead can save a lot of heartache down the line.
If you’d like more advice on helping your child buy a home, or any other homebuying queries, get in touch with us today. We’re here to provide guidance and ensure you’re fully informed before making any decisions.
*Institute of Fiscal Studies
This article does not constitute legal advice. Always consult a professional for guidance based on your personal circumstances.
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