We often see couples purchasing a property together with financial assistance provided by one or both sets of parents. With borrowing from parents and relatives becoming increasingly popular, it raises the question, how you do protect the Bank of Mum and Dad when purchasing a property together?
From the outset, prior to any money changing hands, agreements should be made and formally documented regarding the finance being provided, whether it is being provided as a loan or gift, repayment terms where appropriate and any specific terms and conditions. Where money is being provided as a loan, a loan agreement should be signed by all parties.
When a couple purchase a property together, their names would usually both be registered as joint owners of the property at the Land Registry. If specific shares are not recorded in the Proprietorship Register at the Land registry, in the event of a breakdown in the relationship, the property would usually be split 50/50 between the partners irrespective of contributions made. – This does not take into account any finance provided by one or both sets of parents.
Where money has been provided as a loan, Mum and Dad can also register their ‘loan’ as an interest in the property, either by registering a second charge on the property or a restriction on title at the Land Registry.
In order to protect this investment however, it is recommended that a cohabitation agreement is put in place which outlines the finance given or loaned to the couple and agreement reached regarding repayment or return of the money from any proceeds of sale in the event the couple split up.
Whilst you may consider a cohabitation agreement to be an additional expense at a time when you are already faced with the costs of moving house, putting this agreement in place ensures that both parties in the relationship are protected and all important financial matters are considered from the outset.
It is only with a cohabitation agreement in place that you can rest assured that the finance provided from the Bank of Mum and Dad, which is regularly raised from pension pots, equity release and property re-mortgage is protected.
If you have any questions regarding protecting the finance you have put into a relative’s property and would like to discuss cohabitation agreements, please contact Nicholas Clough in our Family Law department on 07538 385956, by email Nicholas.Clough@psg-law.co.uk or by visiting our Altrincham office today.