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

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

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Homeowners financing their purchases through the bank of mum and dad are failing to protect themselves against future fallouts, writes Claudia Gilham from Mills & Reeve
‘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’

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 percent 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 percent 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 percent of 25–34 year olds contributed equal amounts to the deposit for their home, while just over half (58 percent) contributed equally to the monthly mortgage payments.

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 percent) of the 25–34 year olds surveyed bought their home as joint tenants, yet one third (33 percent) 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.

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.

For advice on this and any other issues around living together, visit www.cohabitation-law.co.uk the only dedicated resource for couples living together but not married.

Published in: December 2017

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