When gifting to a child, a Declaration of Trust can provide legal protection in the case of a break-up with a financially-entangled partner
With home values rising by more than the rate of growth in earnings over the past three years, it’s no wonder first time buyers are finding it harder to get onto the bottom rung of the housing ladder.
Three quarters (77%) of people who do not own a home would like to - but just can’t afford to, the 2019 annual HomeOwners survey, polled by YouGov and sponsored by BLP Insurance, found. High property prices were the main obstruction followed closely by difficulties saving for a deposit.
It’s no surprise then that latest research by Legal & General has found the Bank of Mum and Dad digging ever deeper in 2019, as family and friends spend on average £6,000 more than in 2018 helping loved ones onto the housing ladder.
Parents make an average contribution of £24,100, resulting in the Bank of Mum and Dad now being the 11th largest mortgage lender in the UK.
The truth is first time buyers will struggle to get on the housing ladder at the moment without help from Mum and Dad.
The options for parents
There are several ways parents can help their children buy their first home, but help most commonly comes in the form of a financial gift or loan.
Most parents are using cash savings (53%), but this year unlocking housing wealth through equity release has jumped to become the third largest source of funds (16%), according to figures from Legal & General.
Before you dig into your savings or embark on equity release, get independent financial advice. You need to avoid eroding your finances in a way that impacts on your financial stability in later life.
How to protect gifted or loaned money
Parents who are gifting money for a deposit to their child who is buying with a partner or friend, should safeguard their contribution in the event the couple split up or friendship ends.
This can be done with a Deed of Trust, or Declaration of Trust, drawn up by a solicitor. This document will outline who the money was gifted to – so you can state it was for your child only.
If your child and their partner or friend later go their separate ways, this document will ensure your child retains ownership of your financial gift.
If your child goes on to marry their partner, this could affect the Deed or Declaration of Trust. It would also be prudent to update your will to state that the gift has been made and your child could draft a will to ensure the gifted money goes back to you in the event of their death.
The Declaration of Trust can also clarify if the money is a gift or a loan. If it is a loan the document ought to state when it needs to be paid back.
This Deed or Declaration of Trust can also be useful for your child and their partner or friend to lay out responsibilities for outgoings and what happens to the property if their relationship ends or anyone involved dies.
However, mortgage lenders need to be made aware if a loan has been given as this could affect the size of the mortgage they are prepared to offer.
For more advice on the tax implications and options for helping your children get on the ladder, visit www.hoa.org.uk
Paula Higgins is chief executive of the HomeOwners Alliance
Hello, I have two daughters, one married and one bringing up three children on her own, so is on state benefits. I am in my 70's and want to leave my house to my daughters but if I leave half the house to my daughter on benefits I presume her money will have to be used to live off until it runs out. I have bought my house worth approximately £325,000 after living for over forty years in a house like a building sight with no mod cons so I am very reluctant for my money to be used instead of benefits! Is there any way I can leave her something without her having to give up her benefits, at least until all children are at school ?