Assisting a family member to purchase a house?

Are you thinking about helping a family member by contributing towards their first home purchase? What is the best way to do this? The answer depends on your circumstances.

1. Gift

   If neither you nor your child expects the funds to be repaid, the contribution could be a gift and recorded in a Deed of Gift. However, if your child is in a relationship at the time they purchase, your child and their partner would share the money from the sale of their home equally if they separated. You would not recover your contribution and your child’s partner would benefit from your gift.

2. Loan

   If either you or your child expect that the contribution is to be repaid at some time in the future, you could enter into an arrangement, either a loan agreement or by a deed of acknowledgement of debt. This records the terms of the loan e.g. when it is to be repaid and whether interest is to be charged. Your child’s bank would need to approve this arrangement. You would have no right to ownership of the property.

3. Investment

   You could invest in the property if you advance the funds on the basis that you and your child will own a corresponding share in the property. Your name and your child’s name would be recorded on the title. You would likely be required to apply to the bank for lending as a joint owner, possibly as a joint borrower under the loan agreement and mortgage, and potentially also as a guarantor, guaranteeing the child’s obligations under the loan agreement. You would retain your share in the property if your child separated from their partner, but your child’s share in the property could be divided equally with their partner.

Relationship property and Trusts

If you or your child wanted to retain any money advanced for the purchase of the property, or any increase in the value of the property, your child and their partner could sign an agreement which complied with the legal requirements in the Property (Relationships) Act 1976. Purchasing a property in the name of a Trust is another way to protect the asset from a relationship property claim.

Which option is best for you?

As you can see, there can be different outcomes depending on which of the options you choose. When considering which option is best for you, we recommend you contact us to discuss your situation and how the arrangement could be documented to record everyone’s intentions accurately. Disputes among property owners and how money was contributed at the outset are relatively common. The stress and expense of these disputes can be avoided by taking the right advice as early as possible.