By PHILIP LIVINGSTONE, Advocate, Livingstones
BUYING A PROPERTY
A family affair?
Whilst confidence is gradually returning to the local property market and lenders are more willing to grant mortgages, the issue for many prospective purchasers remains gathering the necessary deposit or satisfying a lender that mortgages will be paid.
“If you are the child in this scenario, you will need to ensure that you understand whether the funds from
your parents are a gift or a loan. ”
Many people are helped financially by family members – often their parents. It may not seem that a generous act by parents would give rise to any legal issues. After all, parents want to help their children wherever possible. However, there are matters which should be considered to try to avoid tensions and arguments later on. This is particularly the case when, for example, a child is receiving assistance from their parents to purchase a property jointly with a partner or spouse.
The parents or family member should consider whether the money they are contributing is a gift or a loan. If the money is a gift, thought should be given to whether the gift is to the child alone or jointly to the child and their partner or spouse. Even if the funds are to be a gift, it may be that the gift is to be conditional - for example, if the relationship ends and/or the property is sold, the parents may wish to have the gift returned.
Parents may also want to consider any changes that may be needed to their wills as a result of the gift, particularly if they have more than one child. If the gift is to be treated as an early receipt of that child’s inheritance, then that should be made clear to the child or children concerned.
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Parents may be willing to help their children by way of a loan, in which case thought will need to be given to when it will be repaid as well as what interest will be charged if any. If there is to be a loan, is it to be repaid by the child alone or both the child and their partner? Parents may also wish to consider what security they will need to protect their loan. If the property being bought is to provide the security, the mortgage provider (usually a bank) will need to be made aware of this and agree to the parents’ loan being registered behind the mortgage provider’s loan.
If you are the child in this scenario, you will need to ensure that you understand whether the funds from your parents are a gift or a loan. If the latter and it is to be repaid, for example, by monthly payments, you need to ensure that you can afford to make the repayments, as well as your mortgage payments. If you and your partner are to be jointly responsible for the loan, is your partner comfortable with that? It can be all too easy to pay your parents last, particularly when finances are tight, which in turn may strain your family relationships.
If you are purchasing a property with a partner it is especially important to discuss all financial matters frankly and openly, particularly if one person is contributing more financially to the purchase, such as receiving a loan or gift from their parents. Where there is inequality in contributions, either to the purchase price or to the mortgage/loan payments or other household expenses, you should both consider entering into a written agreement.
The agreement would set out, for example, who paid the deposit for the property and in what amounts, as well as how the property is owned and the shares of ownership. Gifts or loans from the parents of one or both parties could be recorded, as well as who will be responsible for paying the mortgage, utility bills and any
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